Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How JPMorgan Is Ripping Away Main Street From Regional Banks
Transcript
- Lucas: So JPMorgan Chase just put up another quarter that makes you ask — is there anyone left who can compete with these guys on Main Street banking? Luna: You're talking about the numbers they reported last week? Because the headline was strong, but I think the real story is what they're doing to every regional bank between the coasts. Lucas: Exactly. And look — JPMorgan's total revenue came in around $48 billion for the quarter. Investment banking had a good run, trading was solid. But the piece that honestly scares me if I'm a regional bank CEO is their consumer banking division. They added something like 400,000 new checking accounts in the quarter just through their branch network. Luna: Four hundred thousand accounts in three months. That's not organic growth — that's market share theft. From whom? Lucas: From basically every mid-sized regional bank in the Midwest and Southeast. JPMorgan announced an aggressive branch expansion plan back in early 2025 — 500 new branches over three years, mostly in markets where Fifth Third, Huntington, Regions, those banks have historically been the dominant player. They're now past the halfway point on that build-out, and the deposit data shows it's working. Luna: I saw a stat from S&P Global — JPMorgan now has over 5,100 branches. That's still less than Bank of America, but the growth rate is telling. And regionals are actually shrinking their branch footprints. Lucas: Right. The big four — JPMorgan, Bank of America, Wells Fargo, Citigroup — have been closing branches for years, consolidating. JPMorgan is the one outlier actually adding. And they're being very strategic about it. They're going into affluent suburbs where regional banks have had a comfortable deposit base for decades. Places like Naperville, Illinois, outside Chicago. Or Cary, North Carolina. They drop a branch with a private client office attached, and suddenly the local Fifth Third branch starts losing high-net-worth households. Luna: And the regionals can't fight back on price because they don't have JPMorgan's cost of funds. JPMorgan's overall cost of deposits is something like 1.8 percent right now. Most regionals are paying over 2.5 percent just to keep deposits from fleeing. Lucas: That's the killer. JPMorgan's efficiency ratio — operating expenses divided by revenue — came in at 58 percent this quarter. That's best-in-class among megabanks. The average regional bank is running at 72 percent or higher. Some of the smaller ones are above 80. What that means is JPMorgan can offer lower loan rates and still make a decent margin, while a regional bank has to charge more to cover its costs. Over time, that kind of structural disadvantage is fatal. Luna: And it's not just branches. JPMorgan's credit card business is another weapon. They're the largest credit card issuer by purchase volume in the US. Every time someone swipes a Chase Sapphire or a Freedom card, JPMorgan collects interchange fees and, on revolving balances, net interest income. That revenue lets them subsidize the rest of the consumer operation. Lucas: Exactly. The credit card portfolio generates something like $2 billion a quarter in net income on its own. That's more than many regional banks make in a year. And JPMorgan uses that profitability to fund things like free checking, better mobile app features, more ATM locations. It's a flywheel. The more customers they bring in through cards, the more deposits they get, the more they can invest in technology, the better the experience becomes. Luna: But Jamie Dimon has been warning for years that regulation could slow them down. Do you think the current administration or the Fed would step in if JPMorgan got too dominant on Main Street? Lucas: It's a real question. You've already seen some pushback — the FDIC has been tougher on large bank mergers, and there's talk of a concentration cap on deposits. But JPMorgan's current market share of US deposits is around 13 percent. That's high, but not unprecedented. And they're winning on cost and service, not predatory pricing. Regulators would have a hard time proving it's anticompetitive when the bank is just more efficient. Luna: So for an investor who holds a concentrated portfolio — and I know that's a theme on this show — does this mean you just own JPMorgan and skip the regionals? Lucas: I think that's a defensible bet. JPMorgan has been a core holding in a lot of concentrated portfolios for years. But the question is valuation. JPMorgan trades at about 2.2 times tangible book value. That's a premium to history. Regional banks trade at one to one point three times tangible book. So the market is already pricing in that JPMorgan will keep winning. The question is whether the premium is justified by the growth runway. Luna: And is it? I mean, the branch expansion can't go forever. At some point you run out of attractive markets. Lucas: True, but they're not even halfway through the current plan. I think there's another three to five years of above-peer growth from this strategy alone. Plus you have the investment bank, the asset management arm, the corporate lending business. JPMorgan is a diversified financial machine. If you're building a concentrated portfolio of ten to fifteen names, JPMorgan is probably one of them. But you have to be comfortable with the regulatory risk. And you have to watch the efficiency ratio — if it starts creeping above 62, something is wrong. Luna: You mentioned the portfolio — and this relates to something I've been thinking about. You and I do these episodes every day, and we talk a lot about building concentrated portfolios, about being disciplined, about doing the research yourself. And the honest truth is, this show exists because a small group of listeners helps fund it. Lucas: Yeah. We keep it ad-free — no annoying sponsor reads, no 'this episode is brought to you by' — and that's only possible because of the people who chip in through buy me a coffee dot com slash fexingo. It's not a big ask. It's just a way for listeners who get value from the show to keep it going. Luna: Exactly. And it's a small group that does it, but that group makes a huge difference. So if our conversations have helped you think about a stock pick differently, or saved you from a bad trade, maybe consider joining them. No pressure, ever. Lucas: Alright. Back to JPMorgan. One thing I want to highlight that doesn't get enough attention is their technology spend. They're investing about $17 billion a year in tech — that's more than most large software companies. And a big chunk of that goes into the consumer-facing platform. Their mobile app is consistently rated best in class among big banks. That creates a switching cost for customers. Luna: Right. Once you set up all your bill pay, your direct deposit, your budgeting tools inside the Chase app, moving to a regional bank feels like a downgrade. And when the regional bank can't afford to match the tech investment, you get a self-reinforcing cycle. Lucas: That's the heart of the thesis. JPMorgan is becoming the default financial utility for a growing slice of American households. And utilities, if they're well-run, tend to generate reliable, compounding returns over long periods. The difference is JPMorgan still has growth levers. The branch expansion, the credit card book, the wealth management cross-sell — they're not just a slow-moving dividend stock. Luna: But Jamie Dimon won't be CEO forever. He's 70 now. How much of the premium is tied to him personally? Lucas: A lot. He's been CEO since 2005, and his stewardship is a big reason the bank came through 2008 and 2020 stronger than peers. The succession plan is something investors need to watch. But the management team he's built is deep. Daniel Pinto, the president, has been there for decades. Marianne Lake is running consumer banking. I think the culture is institutionalized at this point. It wouldn't collapse if Dimon stepped down, but the stock might take a temporary hit. Luna: So to bring it back to the regional bank question — if you're an investor today, do you sell your Fifth Third or Huntington stake and put the money into JPMorgan? Lucas: I wouldn't say sell everything. Some regional banks like US Bancorp or PNC have stronger moats than others. But the general trend is clear: the cost advantage of the megabanks is widening, and JPMorgan is using it aggressively. If you own a regional bank, you need to be convinced that it has a specific niche — like relationship lending to small businesses in a tight geography — that JPMorgan can't easily replicate. Otherwise, the math is pretty unforgiving. Luna: And that's the kind of specific, practical framework that makes this show useful. Alright — JPMorgan at 2.2 times tangible book, efficiency ratio at 58, branch expansion still rolling. Good to keep an eye on. Lucas: Yeah. And as always, do your own work. The data is public. The annual report is a surprisingly good read if you have an hour. Thanks for listening.