Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Bank of America Is Outpacing JPMorgan in 2026
Transcript
- Lucas: So here's a stat that caught my eye: Bank of America is up about three percent over the past five trading days. JPMorgan is up about three point two percent. Both are beating the S&P 500, which is down nearly four percent over the same stretch. But when you dig into the fundamentals, there's a clear winner in terms of efficiency. Luna: You mean Bank of America's efficiency ratio? I've seen that number floating around — around fifty-eight percent, right? Lucas: Exactly. Bank of America's efficiency ratio — that's noninterest expenses divided by revenue — came in at about fifty-eight percent last quarter. JPMorgan's was closer to sixty-two percent. That four-point gap is huge for two megabanks with similar revenue bases. Luna: So what's driving that? Is it consumer deposits, their digital push, or something else? Lucas: It's a few things. First, Bank of America has a massive consumer deposit base — they're the second-largest bank by deposits in the U.S. — and those deposits are cheap. Their average deposit cost is well below JPMorgan's because they've focused on high-net-worth clients who keep larger balances and don't chase rate. Luna: Right, so they're not having to pay up for deposits like some regional banks are. Lucas: Exactly. And then on the expense side, their digital transformation is actually paying off. They've closed hundreds of physical branches over the past five years and pushed customers to mobile. Erica, their AI assistant, handles something like a million customer interactions a day now. That's real cost savings. Luna: But JPMorgan is also investing heavily in AI — they just announced plans to deploy more powerful AI agents this year. Doesn't that close the gap? Lucas: It might over time. But JPMorgan is starting from a higher cost base. They have more branches globally, more investment banking headcount, and a bigger trading operation. Those are high-margin businesses when markets are good, but they're also less efficient from a pure cost to revenue standpoint. Luna: So for a value investor looking at financials right now, Bank of America looks like the cleaner story? Lucas: I think so. And it's not just the efficiency ratio. Look at return on equity — Bank of America is running around twelve percent, JPMorgan around fourteen percent. So JPMorgan is still more profitable on capital, but the gap is narrowing. And Bank of America's valuation is cheaper — about eleven times forward earnings versus JPMorgan's twelve and a half. Luna: That's interesting because JPMorgan has always traded at a premium. Do you think that premium is justified anymore? Lucas: That's the big question. JPMorgan's premium was built on its status as the best-managed bank — Jamie Dimon, diversified earnings, lower volatility. But if Bank of America keeps improving its efficiency and generating similar returns, the premium could shrink. And in this environment where tech is getting hammered — the NASDAQ is down almost seven percent in five days — investors are rotating into value, and they want the best value among financials. Luna: Right, the NASDAQ selloff is brutal. Apple down seven percent, Nvidia down six and a half, Tesla down nearly nine percent. That's a bloodbath. Lucas: It is. And the money has to go somewhere. The Dow is only down point seven percent, so large-cap value is holding up. Bank of America and JPMorgan are both up. But the question is which one has more room to run. Luna: And you're leaning Bank of America. Lucas: I am. But let me play devil's advocate for a second. JPMorgan's investment bank is a beast. In a rising rate environment like we've had, their trading revenue has been stellar. Bank of America doesn't have that same scale in markets. So if we get a volatility spike — which we might, given the tech selloff — JPMorgan could benefit more. Luna: That's a fair point. But for a long-term hold, I'd rather have the steady deposit franchise and the lower cost base. Lucas: And that's the bet. One thing that's interesting — and this is a quick honest thing — a handful of listeners chip in monthly through Buy Me a Coffee dot com slash fexingo, and that's literally what funds making this many episodes. No ads, no sponsors, just listeners who find the conversations useful. Luna: Yeah, it's a small group but it makes a big difference. Keeps us independent and focused on what matters — like why Bank of America might be the better buy. Lucas: Exactly. So back to that — one more number: Bank of America's consumer deposits grew about five percent year over year last quarter. JPMorgan's grew about three percent. That deposit growth, especially from high-net-worth clients, is a huge competitive advantage because it funds their loan book cheaply. Luna: And it's sticky. Wealthy clients don't move their money around as much. Lucas: Right. So the thesis is: Bank of America has a lower cost structure, a more efficient digital platform, and a sticky deposit base. That combination should lead to higher returns on equity over time, and the market may start to reward that with a higher multiple. Luna: What's the biggest risk to that thesis? Lucas: The biggest risk is a recession. If unemployment spikes, consumer defaults rise. Bank of America's consumer loan book is big — credit cards, mortgages. JPMorgan is more diversified across investment banking and trading, so it could weather a downturn better. But in a soft landing or mild recession, Bank of America's efficiency advantage should still shine. Luna: And right now, with the Fed holding rates steady, that soft landing is the base case for most economists. Lucas: Exactly. So for a stock-picking episode, I'd say Bank of America is the more compelling story at today's prices. JPMorgan is a great company, but you're paying up for that Dimon premium. Bank of America offers similar deposit strength, better efficiency, and a cheaper valuation. Luna: So for listeners building a concentrated portfolio, would you put Bank of America in over JPMorgan? Lucas: In this environment, yes. I'd take the efficiency and the valuation. But I'd also keep an eye on the next quarter's efficiency ratio — if it ticks up, the thesis weakens. For now, it's a solid pick. Luna: Alright, Lucas. Good case. I'll be watching that number too.