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The Dow Jones Industrial Average contains 30 of the United States' biggest and best-known companies. Included among them are three banks: JPMorgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), and American Express (NYSE: AXP).
*As of Sept. 16, 2016. Data source: YCharts.com.
Why did these three banks make the cut?
There are multiple reasons why these three banks are included on the Dow while other banks are not. To this end, here's the selection criteria for Dow stocks:
The reasons why JPMorgan Chase, Goldman Sachs, and American Express made the cut relate to their size, reputation, popularity, and the specific niches in which they operate.
- JPMorgan Chase is the largest bank in America based on market cap, which easily qualifies it as a blue chip company. It's been known since its founding more than a century ago for prudence and profitability. Most recently, while competitors such as Bank of Americaand Citigrouphave had to retreat and retrench since the financial crisis, JPMorgan Chase took the opportunity to gain market share and continue growing, most notably through its government-assisted acquisitions of Bear Stearns and Washington Mutual in 2008.
- Goldman Sachs plays a similar role among stand-alone investment banks, being the biggest and most admired on Wall Street. As such, not only does it satisfy the blue chip requirement, but it also offers a pure play on a bank that makes its money from capital markets businesses -- trading and investment banking.
- Finally, although many people don't think of American Express as a bank, that's exactly what it is. Unlike Visa, which provides only the payment system's infrastructure -- connecting merchants, customers, and banks -- American Express also finances the loans underlying its credit card holders' accounts. In the most recent quarter, American Express earned $1.5 billion in net interest income alone, which supplemented its $6.8 billion in noninterest income -- things like annual fees and late fees.
In short, it's no coincidence that these are three of the biggest and best-known bank stocks in the country, and that they're also included on the Dow Jones Industrial Average.
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John Maxfield owns shares of Bank of America and Goldman Sachs. The Motley Fool recommends American Express and Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.