JPMorgan Chase & Co

  • Although   the results reflected a significant increase in loan provisions, this was not   entirely unexpected, following a prolonged lockdown period, resulting in a   major downswing in the economy.

  • Uncertainty regarding the economic outlook has meant that banks have   had to build up substantial reserves to meet unexpected losses, despite the   Fed throwing helicopter funds into the markets.

  • The Fed has put new restrictions on the banking sector with the big   banks required to suspend share buybacks, and cap dividend distributions at   their current levels, for the third quarter of 2020, in order to maintain a   high level of liquidity.

  • As bank net interest margins tighten with interest rates at   historically low levels, and demand for funds lackluster, they will be forced   to cut costs in order to maintain profitability, until there is an upswing in   the economy.

  • Robert Kaplan, a deputy governor at the FED, stated that the banking   sector is in better shape than in the 2008 financial crises, and has no   worries about the banking sector capital adequacy, as the build-up of   reserves has put the banking sector in a much stronger position.

  • In addition, ploughing trillions of dollars into the markets, and   proactive activity, such as the various QE operations is positive for maintaining   market liquidity.

  • The different business models in the banking sector, has resulted in   a divergence of recent reported results, so that JP Morgan Chase, with fixed   income revenue soaring by 99% to $7.3bn, beating estimates by $1.5bn.

  • Debt underwriting, and restructuring for companies, and small and   medium businesses, was buoyant, whilst equity trading revenue of $2.4bn was a   beat compared to estimates of $2.07bn.

  • Earnings of $4.69bn, or $1.38 per share, exceeded the market   estimate of $1.04 per share. Revenue came in at $33bn vs the $30.3bn   estimate, driven mainly by investment banking activities.

  • Whilst the group set aside $8.9bn for expected loan losses, the   combination of the diverse business model have once again proven the blue   chip rating of the businesses.

  • JP Morgan is the largest US Bank by assets, with Jamie Dimon, a   charismatic CEO, having a track record of consistent quality delivery.   However he has stated that there is much uncertainly regarding the future of   the economy.

  • In contrast to JP Morgan, and at the other end of the scale, Wells   Fargo reported results that were much worse than expected, with dividends cut   by 80%. JP Morgan’s dividend was maintained.

  • Wells   Fargo have been a consistent underperformer for a number of years, with a   lack of corporate governance and regulatory issues, as well as management changes over the years, in order to turn the   ship around.

  • The massive increase in provisions for loan losses of 9.5bn, is significantly higher than its peers operating off a much higher asset base. It indicates that the quality of the company’s loan book could be in question, with the Wells Fargo lack of critical mass in Investment Banking - trading, putting it at a distinct disadvantage in times of volatility. It is best left alone, until there is evidence of a turnaround.

JPMorgan Chase & Co