Bank of America (NYSE:BAC) is currently the biggest bank in the United States, but as the company continues to shed its assets, JPMorgan (NYSE:JPM) may have a shot at the title. While both financial firms have been selling off more burdensome assets, as have many of the nation’s top banks, JPMorgan has been shrinking less than its rival, in part because of its chief executive Jamie Dimon, whose cautious management before and during the crisis left the company in better straits than many of its competitors. Conversely, Bank of America’s former CEO Ken Lewis left the firm with a number of bad acquisitions.
JPMorgan (NYSE:JPM) has been gaining on Bank of America for the last three quarters. JPMorgan’s $2.20 trillion of assets were only 3.4% short of Bank of America’s $2.27 trillion by the end of the quarter ending March 2011, and JPMorgan is already a more valuable stock, with equity worth 50% more than that of Bank of America.
But both banks will continue to shrink as they rid themselves of portfolios of bad assets acquired before or during the financial crisis. JPMorgan has over $80 billion worth of low-credit quality mortgage and credit card loans, largely acquired from its buyout of Washington Mutual in 2008. Bank of America (NYSE:BAC) had over $100 billion of loans as of March 31, many of which were mortgages or home equity loans acquired from Countrywide Financial. Bank of America’s acquisition of Countrywide has already cost them over $20 billion in capital, with $8.5 billion settling warranty claims by over 22 institutional investors over faulty mortgage-backed securities.
While analysts agree that JPMorgan (NYSE:JPM) will soon take the top spot from Bank of America, with conservative estimates placing the switch in the next 12 to 18 months, being the country’s largest bank isn’t necessarily something to be looked forward to, especially as banking regulators have begun to impose higher capital requirements on the largest banks, which could continue to increase as the banks grow even larger. And it doesn’t necessarily mean JPMorgan will suddenly have a higher profitability or market value.