The report seeks to conduct a comparative credit analysis of JPMorgan Chase &Co and Bank Amer Corp corporate bonds with a maturity period of more than five years. JP Morgan Chase & Co has issued a corporate bond with a coupon of 3.252, maturity date of 09/30/2034.
The price of sale was 94.00 and an expected yield of 2.395%. The credit ratings provided were Baa2 by Moody’s® and BBB- by S&P. On the other hand, Bank Amer Corp issued a callable bond with a coupon rate of 6.500 and an expected maturity date of 09/15/2037.
The credit ratings of the bonds were Baas2 by Moody’s® and BBB+ by S&P. The sale price was 102.00 and an expected yield of 5.036. Bank of America Corporation is an American global firm that offers financial services.
In terms of the assets, BAC is second largest in the U.S. In 2008, the bank acquired Merrill Lynch to grow their overall investment banking base. By December 2017, the company was managing U.S 1.081 trillion in total assets.
The bank faces stiff competition from Citigroup, Wells Fargo, and JPMorgan Chase among others. The bank offers its financial services and products through more than 4,000 retail financial units including online and mobile banking sites, call centers, and more than 15,000 ATMS across the U.S.
Ove the years, the bank has faced numerous lawsuits and legal investigations relating to its management of mortgages and financial disclosures. JPMorgan Chase & Co. is an American global investment and financial services company with its base operations in New York.
The bank offers a wide variety of investment banking and financial products and services including assessment management, investment banking, private banking, wealth management, and securities services. JPMorgan manages more than $2.789 trillion total value of assets.
Both companies operate in the U.S banking sector. From 2018, the banks are facing numerous risks and challenges associated with legacy processes, regulations, disruptive technologies and the demand to create new innovative strategies to enhance sustainable banking growth.
The banking sector also relies on the corporate bonds to obtain sustainable financing of their operations and investment programs. However, the risks of the banking sector in the U.S influences the potential of raising adequate corporate bond financing.
Credit Rating JPMorgan Chase &Co The credit and liquidity position of JPMorgan Chase and Bank of America Corp is critical in understanding the credit ratings of the companies’ bonds. Most of the analysts have projected an increase in the overall earnings of the bank. JPMorgan has a total of 85 outstanding bond issues. 68 of the total outstanding bond issues are in USD with a total volume of 5,794,854,000 bond issues. The second largest bond issues are in RUB amounting to 2,719,700,000. The capital structure of JPMorgan Chase & Co. is not good because it is largely relying on debt financing.
The total debt to total equity ratio of the bank is 203.871%.
https://quotes.wsj.com/JPM/financials 50%
https://www.marketwatch.com/investing/stock/bac/profile 50%
The total debt to total equity ratio of the bank is 203.871%. It shows that the bank depends on debt rather than financing. In the last five years, the credit rating of the JPMorgan has improved significantly. In 2017, Moody’s affirmed a positive outlook for stable financial performance of the bank. Compared with past years, the credit rating of the banks seems to have improved. The rating takes into account the competitive position of the bank in its four diverse business units and the stability of its overall earnings. The credit profile of the bank has improved because of its good capital position and liquidity level. The ratings also factor the inherent risks facing the company. The business risks and external risks such as liquidity risks and risk management, and succession limitations also threatens the solid liquidity position of the company. Factors that threatens the downgrading of the credit rating of JP Morgan includes the increased pressure in investment risks with high risk appetite.
Bank of America Corporation Bank of America Corporation has outstanding domestic bond issues of $U.
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Bank of America Corporation Bank of America Corporation has outstanding domestic bond issues of $U. S 6 trillion. The international outstanding bond issues of the bank are valued at $1.9 trillion. It shows that the domestic bond market accounts for the largest percentage of all outstanding bond issues of Bank of America Corporation. To fund its total assets, Bank of America has a substantial amount of debt based on the guidelines of capital structure. The company faces significant challenges in ensuring that its capital structure aligns with the set capital needs set by the financial regulators in the U.S. However, the equity capitalization of the bank has been improving and thus, reducing the total debt levels making the capital structure more favorable.
Compared to JPMorgan Chase, BOfA has a better capital structure with a total debt to total equity ratio of 178.47%.
https://quotes.wsj.com/JPM/financials 40%
https://www.marketwatch.com/investing/stock/bac/profile 40%
Compared to JPMorgan Chase, BOfA has a better capital structure with a total debt to total equity ratio of 178.47%. It shows that the company relies heavily on debt, but the debt reliance is lower compared to JPMorgan Chase because it has a total debt to total equity of more than 200%.
According to Moody’s credit rating, the credit rating of Bank of America Corporation is positive and good due to its strong operating leverage. The operating leverage continues to support the bank’s profitability and sustainability in the coming years. In 2018, Moody’s has maintained its positive outlook on the credit score rating of Bank of America Corporation stating that the recent launch of the digital mortgage platform is a positive towards improving its credit rating. However, the short-term liquidity of the bank is not strong. However, the soaring equity capitalization shows that the credit worthiness of the bank is improving.
Like all other banks, Bank of America Corp faces inherent and external business risks such as credit risks, market risks, and business operational risks among others. The market risks include potential increase in the commodity risk, currency risk, and fluctuations of the interest rate risks among others. The inability to meet the liquidity requirements set by the financial regulators also increases the level of liquidity risks. The management could also increase risks if it does not operate effectively to meet the needs of its clients.
Financial Analysis JPMorgan Chase & Co. In terms of financial health, the financial leverage of the company has been declining slightly. However, it remains largely sustainable. In 2012, the financial leverage was 12.10 and declined to 11.03 in 2017. The debt to equity ratio also declined slightly from 1.41 in 2012 to 1.12 in 2017. The decline in the debt to equity ratio is positive indicator of improving debt position and outlook of the bank. The net income of JPMorgan Chase has increased by 2.80% in the last five years.
The EPS has also grown by 3.955% over the same years with the revenue growing by 0.53% in the last five years.
https://www.sec.gov/Archives/edgar/data/9631/000119312513465140/d642032dex991.htm 33%
The EPS has also grown by 3.955% over the same years with the revenue growing by 0.53% in the last five years. The net margin of the company has increased slightly in the last five years from 20.49% in 2012 to 22.65% in 2017. The return on assets also increased slightly from 0.86% in 2012 to 0.90 in 2017. However, the return on investments slightly declined from 10.72% to 9.86% in 2017. In spite of all, the profitability and earnings capacity of JPMorgan Chase is stable and the projections are positive. In terms of efficiency, the fixed assets turnover of the bank has improved from 6.79 in 2012 to 7.04 in 2017. However, the asset turnover remained the same at 0.04 in the last five years. All the financial ratios show that JPMorgan financial position is solid and looks sustainable for the coming years.
Bank of America Corporation In terms of financial health, the financial leverage of the bank reduced slightly from 10.13 in 2012 to 9.32 in 2017. The debt to equity also declined from 1.26 to 0.93. The decline in the debt to equity ratio is a positive indication of the reduction in the debts being used in financing its overall operations and investments. The decline in the debt level brings a more sustainable financial position for BAC. Based on efficiency, the fixed assets turnover of the bank increased from 6.37 in 2012 to 9.50 in 2017. The asset turnover remained the same at 0.04 in the last five years. The increased efficiency of allocating assets is a good indication of managing its overall assets and resources. In terms of profitability, the net margin of the bank has grown from 3.39% in 2012 to 19.02% in 2017.
Over the last five years, the net income of BAC has grown by 34.20%.
https://www.investopedia.com/articles/financial-analysis/083116/understanding-bank-americas-capital-structure-bac.asp 33%
https://www.jpmorganchase.com/corporate/investor-relations/document/2016-annualreport.pdf 33%
Over the last five years, the net income of BAC has grown by 34.20%. EPS also grew by 44.22% as well as the expansion of the total revenues of BAC by 1.46%. The return on equity investment also increased from 1.28% in 2012 to 6.83% in 2017. The return on assets also increased from 0.13% to 0.74%. The expanding profitability and earnings potential of the bank is a clear indication strong financial outlook in coming years.
Conclusions and Evaluation It is relevant to consider invest in the U.S corporate bonds as the U.S economy creates some level of investor confidence. The comparison of the two U.S corporate bonds, JPMorgan Chase and Bank of America Corporation makes it possible to determine the best bonds in terms of yields and credit ratings. The credit ratings assess the potential of the bonds being repaid upon the maturity. Moody’s and S&P allocates the credit ratings to the bonds based on the financial and operational performance outlook of the companies. For example, a recent launch of digital banking platform by BOA increased its credit rating to Baas2. Bank of America has a better capital structure than JPMorgan Chase. The capital structure of JM Morgan Chase can be indicated by the total debt to total equity ratio of 20.371%, which is worse than 178.47% of BAC. Bank of America has a favorable total debt to equity ratio because it is financed by lower debt levels than JPMorgan Chase. Therefore, the management of JPMorgan Chase needs to restructure its capital structure to avoid increased credit and liquidity risks. However, both banks face stiff competition and risks from increasing market and business risks in the U.S banking sector and internationally.
Based on the discounted cash flows model of valuing bonds, an upgrade or downgrade of the companies’ credit ratings would affect the price of the bonds. An upgrade of the credit ratings would lead to increase in the bond prices because the cash flows for future periods will increase. A downgrade of the credit ratings would push the bond prices lower as the cash flow projections are lower affecting the present value of the bonds. Comparing to the two U.S corporate banks, it is recommendable for the investors to consider the Bank of America Corporation callable bond rather than the JPMorgan Chase corporate bond. Even though the Bank of America Corporation’s bond has a longer maturity period, it has a better yield rate at 5.036% than 2.395% offered by JPMorgan Chase bonds. The credit rating of BAC is better than JPMorgan Chase at BBB+ as rated by S&P compared to BBB- of JPMorgan Chase as rated by S&P. The better credit rating of Bank of America Corporation than JPMorgan Chase is a good indication of strong creditworthiness. The higher yields and strong credit ratings makes the corporate bond of Bank of American Corp. recommendable to investors than the bonds of JPMorgan Chase.

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