Bigger is better. That was the theme of the third quarter for major US banks, which reported their latest earnings this week.
JPMorgan is not just the biggest US lender by assets. Last quarter it also managed to grow both revenue and profit faster than its main rivals. This demonstrated “broad-based strength and the resilience of our business model,” according to JPMorgan CEO Jamie Dimon. Indeed, “the bigger banks looked fundamentally better than the smaller banks,” said David Ellison, a portfolio manager who specializes in bank stocks at Hennessy Funds.
Investors are worried that banks
will struggle to generate returns from low—or in some parts of the world, negative—interest rates. As the spread between borrowing and lending rates contracts, the biggest diversified banks can still rely on revenue from advisory and underwriting fees, as well as trading. In its latest results, JPMorgan generated the most investment banking fees in a third quarter in its history. Although it was involved in arranging ill-fated IPOs like WeWork’s aborted offering and Peloton’s overpriced deal,
unlike Goldman Sachs it didn’t take sizable stakes in these stumbling unicorns. Goldman reported worse-than-expected earnings due, in part, to lower valuations on its stakes in companies like Uber and WeWork.
And so, in the third quarter, the biggest got even bigger, as JPMorgan extended its lead on rivals when it came to revenue…
… earnings …
… and profitability.
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[Artwork details: Julie Mehretu. “Refuge.”