JPMorgan's chart questioning Deutsche Bank and HSBC's long-term performance
If you’re a global bank feeling shy about one of your key business metrics, you might want to avoid an overlooked chart from JPMorgan.
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At the JPM investor day earlier this year, the bank proudly listed its Return on Tangible Common Equity (ROTCE) over the last ten years. ROTCE is a financial metric that measures how efficiently a company uses its capital. And - measured by ROTCE - JPMorgan has consistently blown its competitors out of the water.
As the table below shows, in JPMorgan’s eyes, a good ROTCE is 17% or above across a year, while a bad ROTCE is below 10%. At this level, banks don't typically cover their cost of capital. JPM’s closest competitor, Capital One, has posted three such years in the last decade; Morgan Stanley has posted two; Goldman Sachs and UBS have posted on each. JPMorgan itself has posted seven.
While JPMorgan is best in class, who is the worst? That would be Deutsche Bank, or maybe Credit Suisse.
For what it’s worth, JPMorgan’s CEO, Jamie Dimon, doesn’t seem to imply that 17% returns were a necessity for success. “If you go back to the 10 years before that,” he said, “a lot of people earned over 17%. Almost every single one went bankrupt.” Credit Suisse managed to do it fine without those returns, however. “I'm not standing in front of you, arrogant about JPMorgan,” he added.
The table below shows ROTCE across the entire bank, and is not just limited to respective investment banks.
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