JPMorgan Chase & Co

JPMorgan Chase is a strong bank with a steady record, but at this price our numbers show no margin of safety.

JPMorgan Chase earns most of its money from interest on loans and fees for markets, advisory, payments and asset management work. In the latest year its revenue was $182.4B and its net income was $57.0B. Our tests find no loss year across 15 years of filings, but return on equity averaged 14% and fell as low as 9.6%. The price of $335.67 sits above our base-case value of $268.64, which gives a margin of safety of -25%, and the bear case of $146.78 is far lower still.

JPMorgan Chase earns most of its money from the interest it receives on loans and the fees it charges for banking, markets, advisory and asset management services. In the latest year its revenue was $182.4B and its net income was $57.0B. The Firm reports through three segments: Consumer & Community Banking, Commercial & Investment Bank, and Asset & Wealth Management.

• net interest income from lending and deposits
• investment banking and markets fees
• consumer and small business banking
• asset and wealth management fees
• payment and transaction processing fees

Inside the circle? The record is steady: there were 0 loss years in the period, and return on equity never fell below 9.6%. Bank earnings still move with interest rates, credit losses, market activity and rules set by regulators, and the excerpts do not give a full view of how those will change over ten years, so a careful owner would treat the ten-year estimate as a range rather than a point.

Profits at JPMorganChase appear to rest on scale, brand and the heavy rulebook that surrounds banking, but the excerpts support only part of that picture. The filing describes the Firm as a leader across investment banking, consumer and small business banking, commercial banking, transaction processing and asset management, and return on equity averaged 14% with a low of 9.6%. Regulation keeps new banks out, yet the same filing shows that rules also limit what the Firm can charge and add to its costs. The excerpts give no market share, deposit cost or operating margin data, so we cannot test directly whether the Firm can raise prices without losing business. A Buffett-style reader would want that test passed through a full credit cycle before calling the moat durable, which is why we rate it narrow.

The filing excerpts we have do not describe how JPMorgan Chase plans its buybacks, dividends or acquisitions, so this view rests mainly on the numbers. The share count has changed by -3.1% a year, and the dividend payout has averaged 32% of earnings. Retained earnings have created market value well above the amount kept, as the retained earnings test shows at 2.4×. A bank must hold large capital buffers, and the excerpts say regulators can limit payouts, so not all surplus cash is free to return to owners. The language in the excerpts is regulatory and does not read as promotional, but it is also not the owner-level commentary Buffett looked for in shareholder letters.

• The share count has changed by -3.1% a year, which a Buffett-style reader would read as buybacks returning value to owners, though the excerpts do not give the buyback amounts.
• The dividend payout has averaged 32% of earnings, which leaves most profit inside the bank to support growth and capital needs.
• Book value per share has grown at 7.3% a year, and the share price is 2.6× book value, so owners now pay a premium for that compounding.
• At $335.67, the share price sits above the base-case value of $268.64 per share, so there is no margin of safety on these inputs.

• FailsMargin of safetyFails

  At $335.67, the price is above the base-case value of $268.64 (the bear case is $146.78), so there is no margin of safety (-25%). The standard lens asks for 25%.

  Why this test
• MixedHigh returns on equity without leverageMixed

  Return on equity averaged 14%, reaching 15% in 4 of the years measured; the weakest year was 9.6%.

Buffett's test of consistent earning power is passed: the numbers show no loss years and steady profits over the period. The circle of competence test is more open. The filing describes the Firm as 'a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management', which is a wide range of businesses for a reader to understand. The durable advantage is only partly shown. The excerpts describe competition from many rivals and from 'new competitors in the financial services industry', and they give no market share or deposit cost data, so pricing power cannot be tested. The retained earnings test passes at 2.4×, and the share count has fallen by -3.1% a year, which fits Buffett's view of buybacks made when the owner gains. The margin of safety test fails, because Buffett asked for a price well below a conservative value, and the price is above our base case. Buffett also treated interest rates as gravity for valuations: with the 10-year Treasury yield at 5.2%, future cash is worth less today, and this pulls down any value estimate. The excerpts do not include cash flow figures, so the owner earnings test cannot be run.

• Stress capital buffer requirement, effective 1 October 2026

  The filing says the Federal Reserve will set this requirement by 31 August 2026. A higher buffer would hold back the cash that could otherwise go to owners.

• Credit loss provisions and net charge-offs in the consumer and commercial real estate books

  Bank earnings fall when borrowers default. The filing names commercial real estate and consumer debt as areas of stress, so a rise here would test the steady record.

• Final version of the revised Basel III capital framework

  The filing says the proposal has not been finalised and its content is uncertain. Capital rules set how much cash the bank can return, and changes would alter the owner's share of profit.

• Share count and buyback pace against the share price

  Buffett bought back shares only below value. Buybacks at a price above our base case would not match his test, so the pace and price matter.

• Legal penalties and the OCC consent order from March 2024

  The filing says the Firm remains under a consent order and has paid significant penalties in the past. Future penalties would reduce earnings and test management's candour.

Questions the filings couldn't answer

• What are the Firm's deposit costs and how much would they rise in a prolonged period of high interest rates?
• How far would earnings fall in a severe credit downturn, and does the Firm's return on equity stay above its cost of equity through that cycle?