JPMorgan is flying high during the pandemic
“It’s a balance sheet, scale and electronification game now, and the bigger you are, the better you do,” Greenwich Associates said when the report was published. That’s propelling JPMorgan – which spends more than $US11 billion ($16.2 billion) a year on technology – ahead of its competitors.
America’s biggest bank added 2.5 percentage points to its share of trading revenue among its top peers between 2015 and 2019. It has a 12 per cent share of trading in fixed-income, currencies and commodities, an 11 per cent share of equity trading, and a lead in derivatives. That places it at the center of the world’s financial markets. Its ability to move large volumes of inventory is unrivalled, competitors and clients say.
Last year, JPMorgan added 25 per cent to its hedge-fund balances, bringing them to $US500 billion, and it has been targeting $US1 trillion. This growth in hedge fund clients has allowed it to build its stock-trading business, with equity derivatives powering a surge in revenue. It helps too that borrowers have been tapping the bond markets at a record pace.
Crucially, it’s the bank’s market dominance – which lets it take on more risk relative to its size – that appears to have become self-perpetuating. “We don’t need to take a huge amount of risk for the franchise to be profitable,” Pinto told a conference last week. “At our scale, the franchise is perfectly profitable. So, the only thing we need to do is to always be in a position where we can monetise the franchise.”
For chief executive officer Jamie Dimon, a roaring trading division is just what he needs to make up for the inevitable problems in the lending business caused by the COVID-19 pandemic, with companies and households struggling to repay their loans amid the worst recession in decades. Credit losses will pile up and the decline in US interest rates will erode profit margins in the business over time. JPMorgan’s profitable consumer business won’t be such a cash cow.
But when the wave recedes, the Wall Street trading titan could be in a league of its own. The question then becomes: Is that healthy for the banking system?
Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.