Uniform Bank Performance Report - Anderson School of Management

A very useful ratio when measuring bank profitability is the return on equity (ROE). In this ratio, the net
income is divided by the average total equity. This shows the amount of income a bank has earned for
every dollar of equity outstanding. It is a leading factor in investment decisions as it allows investors to
measure how well the banks are using money invested in equity. The more a bank is able to earn per
dollar of equity, the higher its ROE will be. ROE is also an indication of a bank’s solvency. If the bank has
a negative ROE, it means that it has lost money on shareholders’ investments, and may not be able to
repay interest and debt upon maturity.
JP Morgan as well as its competitors showed a decline in their ROEs from 2007 to 2008. During this year,
factors such as rising mortgage default rates began to hurt banks’ performances. These factors, as well
as the full‐blown credit crisis in late 2008, stunted the ability of banks to generate income, thus causing
ROE to fall. During this period, JPMC showed a small decrease in ROE from 10.9% to 8.8%, faring better
than B of A, and slightly better than Wells Fargo. From 2008 to 2 nd quarter 2009, JPMC’s ROE fell more
sharply and was inferior to that of Wells Fargo yet still slightly better than B of A.
NET INTEREST MARGIN (NIM)
5
4.5
4
3.5
3
2.5
2
1.5
JPMorga Chase
Bank of America
Wells Fargo
1
0.5
0
2007 2008 2009 2nd Q