JPMorgan: Swapping A 5% Yield For A 5.9% Yield

Core Viewpoint - JPMorgan is a well-established financial institution with a focus on preferred securities for income generation while maintaining potential for capital gains [1] Financial Performance - JPMorgan reported a net interest income of $22.75 billion for Q2, reflecting a year-over-year increase of over 4$4 billion, indicating strong performance in this area [2] - The provision for credit losses increased from $2.9 billion to$3.05 billion year-over-year, but the bank still reported a pre-tax income of $23.4 billion, demonstrating its ability to cover anticipated losses [3] Preferred Securities - The Series MM preferred stock, with a 4.2% dividend yield, has seen a price increase of 19% since October 2023, resulting in a total return exceeding 20% [4] - The Series DD preferred stock offers a 5.75% dividend yield, but is trading at a premium, leading to a current yield of just under 5.7% [5] - The Series EE preferred shares have a 6% dividend coupon and are trading at a slightly higher price than Series DD, with a current yield of approximately 5.9% [7] Investment Considerations - The likelihood of the Series EE preferred shares being called is higher due to their higher coupon rate, making them a less cost-efficient funding option for the bank [9] - The potential for capital loss exists if interest rates decrease and JPMorgan opts to call the more expensive capital [10]