Thursday, April 14, 2011

Jamie Dimon's Chase's Revenue Challenges

Today's Wall Street Journal's Heard On The Street column took Chase CEO Jamie Dimon to task for talking up a one-time loan loss reserve reduction while presiding over anemic revenue growth.

 Specifically regarding revenues, the article states,

"Finally, a big portion of the outperformance came from stronger-than-expected fixed-income revenue in the investment bank, but these can be lumpy. Shareholders want recurring revenue growth. And on this point, J.P.Morgan remains a show-me story."

So true. This has been a subject on which I've written before. Chase gets credit by pundits for performance it doesn't actually exhibit.

Just to be sure, I went to my Compustat data and looked at the annual total revenues as of March, from 2005-2011. They rose from $64B to $115B, for a 10% annualized growth rate. But the annual revenue growth rates, at March of each year, were actually:

Mar-06    Mar-07     Mar-08     Mar-09    Mar-10    Mar-11
30.9%      26.3%      7.3%         -8.2%       12.0%     -1.2%

Several things become clear from this data.
First, the pre-recession revenue growth rates of healthy double-digits is gone. For the last two years, the best the bank could manage was 12% in 2010. Revenue actually declined at Dimon's Chase in the past twelve months.
Second, as is typical with commercial banks, revenue growth has been volatile.
Third, if Dimon has any special skills, it sure isn't in revenue growth management. More likely, as I've always contended, what he learned from his mentor, Sandy Weill, is how to slash expenses.
Thus, we don't see long term, consistent revenue growth which would underpin consistently superior total returns. And the nearby chart of Chase's and the S&P500 Index's price series for the past five years so indicates.
Chase has barely outpaced the index. Certainly not to an extent necessary to offset the risk of a single equity in comparison to the S&P.
Once again, Dimon's so-called leadership comes up short when you actually examine the data.

No comments: