08 Jun 2020
Posted in Business Fundamentals
JPMorgan Chase most valuable bank by MCap globally in Dec 2019
JPMorgan Chase was found to be the most valuable bank globally by market capitalization (MCap) as of 31 December 2019, according to GlobalData, a leading data and analytics company. The bank topped a list of 25 companies, ranked by key metrics to assess financial performance.
Anindya Biswas, Financial Analyst at GlobalData comments: “The aggregate year-on-year MCap of the top 25 banks reflected an increment of 13.9% from US$3.2 trillion to US$3.6 trillion. Six of the top 25 companies registered decline in their MCap – HSBC saw the biggest reduction with a drop of 11.2%.
“Among the gainers, Truist Financial experienced a substantial growth of 128.2% due to its merger with SunTrust Banks, while JPMorgan Chase, Bank of America, Citigroup, Sberbank, Goldman Sachs and PNC Financial experienced moderate year-on-year (YoY) growth.”
Even though the majority of companies that saw an increase in MCap were from the US, it is not all rosy for the US banking sector. The US financial markets are continuing to grapple with the increasing impact of the COVID-19 pandemic.
Biswas continued: “China managed to keep its financial markets stable even though the value of Chinese shares and government bond futures declined. The MCap of a few notable banks in China such as the China Construction Bank, Bank of China and Agricultural Bank of China received a setback, while the UK’s HSBC, Brazil’s Itau Unibanco and Spain’s Banco Santander also experienced a dip, reflecting the challenges prevailing in these countries.
“The onset of the COVID-19 around the world has led to drastic changes in market conditions in countries such as the US, the UK India, and Canada – the likes of which has never been seen before. The Fed rate cuts by the US to nearly 0%, the decline in the base policy rates to 1.25% by the Bank of Canada and the more drastic deterioration in base rate to 0.1% from 0.75% by the Bank of England are just some instances of how economies globally are struggling to regain their foothold in these uncertain times. ”
On the revenue front, there was an overall growth of 9.1%, with only the Commonwealth Bank of Australia reporting a decline of 1.3% due to reduction in corporate loans due to portfolio optimization initiatives, lower volumes of initial financial advisory fees and higher insurance claims. Of the rest, the Royal Bank of Canada and HDFC grew 17.7% and 45.1%, respectively, while others reported moderate growth. It will be interesting to see if this can hold up, given the lower global growth forecast by the IMF.
The top 25 banks by MCap continued to have adequate liquidity with an average loan-to-deposit (LTD) ratio of 70.8%. Five of them – Truist Financial, US Bancorp, Banco Bradesco, PNC Financial and Banco Santander – reported an LTD ratio within the ideal range of 80%-90% while Commonwealth Bank of Australia and Itau Unibanco witnessed LTD ratio of over 100%, reflecting a relatively greater dependence on wholesale funding.
Biswas added: “The average NII to revenue was 29.6% for the top 25 banks by MCap. This measure for Banco Bradesco and BNP Paribas stood at 58.1% and 55.2%, respectively, which reflected a greater focus on fee-related activities in light of the prolonged low interest rate environment. The remaining players derived majority of revenue from interest related activities, with the ratio below 50%. The average LLP as percentage net loans stood at 0.9% with nine players faring better than the average, indicating high quality of assets.
“The average P/E ratio for the top 25 was 8.1x, of which 17 players’ P/E was below average. JPMorgan Chase, Citigroup, Morgan Stanley, Royal Bank of Canada, PNB Paribas, PNC Financial and Goldman Sachs reported EPS of more than US$5. The average ROE and ROA of the top 25 were 11.6% and 1.1%, respectively, with the highest ROE reported by Itau Unibanco of 19.8% and the highest ROA of 2.8% of Sberbank – both of which have been reporting steady improvement in its business performance and profitability for a past few years.”