What’s going on?

US investment bank JPMorgan Chase proved its strength and won a prize when it announced financial results: its 2019 was the most profitable year for any US bank ever.

What does this mean?

• JPMorgan reported a 21% surge in profit last quarter: largely driven by a 56% increase in trading revenue. Bond trading was especially brisk: the bank made almost $1 billion more than it expected thanks to a particularly busy year-end.
• JPMorgan wasn’t the only bank, Rival Citigroup results also surpassed analysts’ expectations: both revenue and profit were up:
  • Citigroup’s bond business is also benefiting;
  • Its IB division did better than expected, too: a series of big deals hammered through last quarter helped ring up a 6% revenue increase.

Why should I care?

For markets: The rate escape.

Banks spent much of 2019 grappling with the fallout from falling interest rates – as happened three times last year.

• At Wells Fargo, quarterly interest income dropped 11% compared to a year before.
• But the bank can take some comfort from the boost in mortgage demand that also accompanies lower rates: it extended 58% more loans last quarter.

Zooming out: In the cooler.

JPMorgan and Citigroup’s impressive results may justify their stocks’ impressive gains.

• In fact, the banking sector as a whole had its best year since 1999, with stocks surging an average of 36%.

But investors don’t expect the good times to continue. They’re forecasting a $10 billion drop in profits for 2020, thanks to (1) low rates and (2) an economic slowdown that could conspire to reduce banks’ revenues.

Content source: Finimize. (2020) Step Right Up. Available from: https://www.finimize.com/wp/news/step-right-up/ [Accessed 20 January, 2020]