JPMorgan Bolstered Its Reputation With Record-Level Profit

JPMorgan Bolstered Its Reputation With Record-Level Profit
Stéphane Renevier, CFA

about 2 months ago2 mins

Mentioned in story

What’s going on here?

JPMorgan might’ve had a less-than-stellar final quarter of the year, but the banking goliath well and truly recovered by announcing a record-breaking full-year profit.

What does this mean?

JPMorgan made almost a third more profit than the year before, banking a record high just shy of $50 billion – and that was mainly thanks to rising interest rates. See, JPMorgan makes the bulk of its money by bringing in more interest from loans than it pays out. And last year, the bank used rising interest rates to its advantage, charging borrowers more than usual without paying as much interest out to saving account owners. The difference is known as net interest income, and that alone brought in almost $90 billion last year. Investors certainly saw the dollar signs: JPMorgan’s shares climbed 22% over the year.

JPMorgan net interest income

Why should I care?

For markets: JPMorgan’s a big, fat fish in a small pond.

JPMorgan’s success will only rub salt in other big banks' wounds. Bank of America fell short of expectations, while Citigroup rounded off its worst quarter in 15 years with expansive job cuts. But don’t write off the duo just yet: big banks’ results are often compromised by one-off snags, like underperforming trading teams or occasional chunky expenses.

JPMorgan stock
Source: Google Finance

The bigger picture: Bad luck, little guys.

Bigger is better, at least when it comes to running a bank during an economic downturn. JPMorgan’s hardened reputation makes borrowers and savers trust that if it came into trouble, the government would help steady the company and keep their cash safe. So while smaller banks are pulling up saving rates to incentivize customers to stick around, big banks like JPMorgan don’t need to follow suit. Plus, they can use that extra cash to scoop up any smaller institutions that crumbled under the pressure.

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