So Long, George Bailey

JPMorgan Chase Is Less Bank, More Behemoth

Taking in deposits and making loans is less important than ever.
Photographer: Daniel Tepper/Bloomberg
At Closing, January 18th
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JPMorgan Chase & Co., it appears, is outgrowing its bank.

The nation's largest bank by assets on Friday morning reported better-than-expected fourth-quarter results. It also crossed a big annual revenue milestone -- re-entering the 12-figure club for the first time since 2010. It reported $104 billion for 2017 on an adjusted basis.

Bright Spot

JPMorgan's loans grew faster than expected, beating some rivals

Source: Bloomberg, company filings

Loan growth for Citigroup and Bank of America are based on analysts expectations. Growth is compared to a year ago.

However, at the same time that JPMorgan is more behemoth than ever -- it earned nearly $27 billion in 2017, or $73 million a day, excluding a big charge for changes in the tax law -- its actual bank, the one that takes in deposits and makes loans, is, relatively speaking, smaller and less important to the financial giant than ever, which could be a problem.

Out of the Gate

JPMorgan Chase was the first big bank to report fourth-quarter results; they beat expectations

Source: Bloomberg

While the bank's investment banking revenue was lower than expected, with revenue from fixed-income trading dropping 34 percent, its consumer bank was a relative bright spot. Lending rose 4 percent from a year ago, which was slightly higher than expected. Nonetheless, JPMorgan's provision for credit losses was more than $1 billion for the fourth consecutive quarter, growing this time by nearly $300 million from a year ago to $1.3 billion. The bank's charge-off ratio was 0.6 percent, compared with an expected 0.4 percent at Bank of America Corp. Still, profit in the business increased.

It's an inconvenient truth for CEO Jamie Dimon, who has long tried to paint his bank as something out of "It's a Wonderful Life." That image, along with Dimon's deft handling of the financial crisis, has given JPMorgan an aura of being safer than the other big banks. JPMorgan declined to shrink its branch system long after rivals admitted that technology and millennials meant physical banks weren't as needed anymore. Defending its branches a few years ago, Dimon said, "Around the country, people bring in their dogs and sit around for social reasons. We give out little doggie bones." More recently, Dimon declared bitcoin a fraud, distancing himself from Goldman Sachs Group Inc. and others on Wall Street who have embraced the volatile cryptocurrency, though he has recently walked those comments back somewhat.

JPMorgan's neighborhood-bank image had never really been true. It has long maintained the largest financial derivatives book on Wall Street, and for the past few years a loan-to-deposit ratio that remains far lower than all of the other big banks. But that reality is getting harder to hide. Five years ago, 51 percent of the bank's revenue came from its consumer banking business. Last year it dropped to 45 percent.

Leaning Less on Lending

JPMorgan's revenue from its traditional consumer bank has dropped to 45 percent

Source: Bloomberg, company filings

Everything else includes investment banking, asset management and corporate lending.

It's unclear if Dimon is shrinking his traditional banking presence by design or happenstance. Dimon wants JPMorgan to be bigger. Asset-management and investment-banking businesses require less capital and are easier to grow. The risk is that you end up looking less like George Bailey's bank and more like Dick Fuld's. (Case in point: JPMorgan took a $143 million mark-to-market loss on a margin loan to a single customer in its stock-trading unit.) But in today's benign market, no one, not investors, and certainly not the current Washington regulators, are going to penalize a bank for taking on more risk.

Over the next few years, JPMorgan, along with all of the big banks, should do just fine. Financial firms are already counting their tax savings. But the bigger question is where banks' biggest boost will come from. Will it come from lighter regulation or from a better economy that has higher interest rates? The answer to that question will determine which banks do better than others. Dimon has proved deft at steering his bank in the right direction in the past. Right now, he is headed away from a business that will most likely benefit the most from a better economy, leaving George Bailey in the rear-view mirror. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Stephen Gandel in New York at

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