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JPMorgan Chase enjoys the best year for any US bank on record

By Lawrence Gash

Leading bank enjoys bumper fourth quarter as Fed averted repo crisis

JPMorgan Chase & Co (JPM) has reported the best year for any American bank in history, helped by a 21 per cent surge in fourth quarter profits.

Founded in its current form in December 2000, the bank has reported record annual earnings of $36.4bn (£28bn, €32.6bn). The bank’s share price gained 1.17 per cent on the news, to close at $138.80 per share, with gains continuing in pre-market trading.

2019 proved to be a great year for bank stocks and JPMorgan led the way; in the past 12 months the bank’s share price has gained 40 per cent.

Fixed-income trading generated significant unexpected revenue in the last quarter of 2019, thanks to gains in securitised rates and products and unusually high activity towards for the festive season. Total fixed-income trading was $1bn higher than analysts had previously predicted. Total fourth-quarter net income increased from $7.07bn, or $1.98 a share in 2018, to $8.52bn, or $2.57 a share.

The fourth quarter could have proved less profitable had a liquidity crisis reared its head towards the end of 2019. Some commentators have argued that JPMorgan triggered the so-called ‘repo crisis’ by spending more than $77bn on share buybacks since 2013 and reducing liquidity in the overnight money markets. With the Federal Reserve Bank of New York injecting more than $322bn into these markets by early December, such a potential crisis was averted, and banks continued to generate significant profits.

In some ways JPMorgan appears to be in competition with itself, as its latest overall report knocks off its 2018 performance to hold the industry record. Indeed, the banks’ s chief financial officer Jennifer Piepszak has maintained that the bank’s ambition is to beat this record in 2020. In a call with journalists she stated: “We certainly don’t think this is as good as it can be. We continue to see opportunities across the franchise.”

While JPMorgan is the only top-five American bank with a market value higher than the book value of its assets, it still faces hurdles in the year to come. Last week analysts at UBS downgraded JPMorgan from "buy" to "neutral", stating the bank’s share price no longer had a “sufficient upside” thanks to 2019’s “substantial share outperformance.”

With 97 per cent of North American CFOs expecting a recession in 2020, according to a recent Deloitte survey, scepticism as to the longevity of JPMorgan’s surge could be warranted. Indeed, signs of a slowdown could already be beginning to show. While the bank generated $57.2bn in net interest income in 2019, this fell below its guidance of $57.5bn.

However, judging by the JPMorgan’s record post-2008, the bank would likely withstand the pressures of a recession and could come out of even stronger.

FURTHER READING: JP Morgan seeks full control of its China futures business

FURTHER READING: Central banks start new round of quantitative easing

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