What's going on?
US investment bank JPMorgan Chase proved its strength and won a prize when it announced financial results on Tuesday: exemplary earnings meant its 2019 was the most profitable year for any US bank ever (tweet this).
What does this mean?
JPMorgan reported a 21% surge in profit last quarter from a year before, largely driven by a 56% increase in trading revenue. Bond trading was especially brisk: the bank made almost $1 billion more than it expected thanks to a particularly busy end to the year.
JPMorgan wasn’t the only bank to nail last quarter either. Rival Citigroup also surpassed analysts’ expectations in its results on Tuesday: both revenue and profit were up, with Citigroup’s bond business also benefiting. Its investment banking division did better than expected, too: a series of big deals hammered through last quarter helped ring up a 6% year-on-year revenue increase.
Why should I care?
For markets: The rate escape.
Banks spent much of 2019 grappling with the fallout from falling interest rates. When interest rates are higher, banks can charge more for loans and in turn make more money. But when rates are cut – as happened three times last year – their interest income declines. At Wells Fargo, which also reported results on Tuesday, quarterly interest income dropped 11% compared to a year before. But the bank can take some comfort from the boost in mortgage demand that also accompanies lower rates: it extended 58% more loans last quarter than it did in the same period in 2018.
Zooming out: In the cooler.
JPMorgan and Citigroup’s impressive results may justify their stocks’ impressive gains over the past year. In fact, the banking sector as a whole had its best year since 1999 in 2019, with stocks surging an average 36%. But investors don’t expect the good times to continue. They’re forecasting a $10 billion drop in profits for 2020, thanks to low rates and an economic slowdown that could conspire to reduce banks’ revenues.