JPMorgan Chase single-handedly wins big, taking away 20% of the profits from the US banking industry

Taking advantage of the acquisition of First Republic, JPMorgan Chase "supports" the profitability of Bank of America in 2023, further consolidating its leadership position in the banking industry during a turbulent year.

On December 27th, based on data from industry tracking institution BankRegData, JPMorgan Chase's net profit in the banking sector in the first three quarters of 2023 reached $38.9 billion, taking away nearly 20% of Bank of America's profits, surpassing the combined profits of its biggest competitors, Bank of America and Citigroup.

According to JPMorgan Chase's previously released financial report, its net profit in the first three quarters of this year reached $40.245 billion, compared to $26.668 billion in the same period last year, a year-on-year increase of 50.91%.

With the significant interest rate hike by the Federal Reserve this year, Bank of America is under tremendous pressure. The increase in bad debts caused by credit deterioration and the rise in deposit costs have led to competition, which may result in a decrease in the bank's net interest income.

At the same time, the rise in interest rates means that the value of bonds held by banks has fallen, resulting in unrealized losses and putting pressure on capital levels. In addition, higher borrowing costs have suppressed demand for mortgage loans and corporate loans.

Media analysis points out that the headwinds in the industry this year have had a significant impact on small banks, while JPMorgan Chase, with the acquisition of First Republic Bank and taking advantage of its competitors' "mistakes," has firmly held the position of "Wall Street's number one."

So far this year, JPMorgan Chase's stock price has risen by nearly 24.62%.

Advantage 1: Seizing Opportunities

As mentioned by Wall Street News earlier, JPMorgan Chase's acquisition of First Republic Bank is not only because it wants to be a "savior," but also because the acquisition of First Republic Bank is strategically important for JPMorgan Chase. JPMorgan Chase can hold the loans of First Republic Bank with lower risk and cost, and it can also help its growth in the wealth management field and compete with rivals such as Morgan Stanley. Based on this year's Q2 earnings report, JPMorgan Chase's net revenue reached $41.31 billion, a YoY increase of 34%, after acquiring all of First Republic Bank's deposits and the majority of its assets. Excluding the impact of First Republic Bank, the revenue still grew by 21% YoY.

Looking at Q3 of this year, JPMorgan Chase's highly anticipated net interest income (NII) was $22.9 billion, surpassing analysts' expectations of $22.3 billion, with a YoY growth of 30%, or 21% excluding the impact of First Republic Bank.

Former Boston Fed Chairman Eric Rosengren stated that JPMorgan Chase has been very efficient in "taking advantage" of opportunities presented by struggling companies.

Advantage 2: Relying on Peers?

Media analysis points out that while JPMorgan Chase is making the right strategic decisions, many other banks are facing strategic missteps, making their situation even more challenging in a high-interest rate environment:

The Fed's interest rate hikes have caused banks to suffer over $100 billion in losses on their bond holdings. Since 2016, Wells Fargo has been penalized for opening millions of fraudulent accounts, and the Fed has set a rare limit on the bank's asset size. Due to the unauthorized accounts and poor management, Wells Fargo has paid a total of $6.7 billion in settlements and compensation in recent years, further limiting its profitability.

Citigroup also announced in November that the company is undergoing another round of organizational restructuring and will continue to streamline its workforce. Citigroup's revenue has been in a difficult situation in recent years.

Goldman Sachs' net profit declined by 35% in the first half of this year and has initiated multiple rounds of layoffs. Since the beginning of this year, Goldman Sachs has laid off thousands of employees.

Ken Usdin, Head of Jefferies' banking research department, pointed out that the most impressive aspect of JPMorgan Chase this year is its ability to achieve the highest asset return rate among its peers, considering its massive scale.