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Onwards and sidewards

14 Jan 2015 By Antony Currie

JPMorgan’s fourth-quarter results augur a year of benign mediocrity for big banks. The Wall Street giant had some bright spots in the final three months of 2014. But revenue was down and expenses up as more lending did little for the bottom line, trading suffered from the wrong kind of volatility and another legal bill took its toll.

None of that is unique to the institution run by Jamie Dimon. Any traders who were on the right side of oil and dollar trades did well last quarter. But volatility in both corporate bonds and U.S. Treasuries proved too hot for many to handle.

Some businesses put in good, even exceptional performances. JPMorgan’s loans increased by 2 percent from 2013’s fourth quarter. But that doesn’t do justice to its 8 percent jump in both auto loans and mortgage originations. The latter beat the broader market, which was down 5 percent. The same seems true of debt underwriting, where revenue jumped a whopping 31 percent to $1 billion.

But it’s hard for such individual performances to have much impact at a mega-bank. In fact, with overall revenue falling, the bank’s efficiency ratio – which measures how much of its top line is used for expenses – ticked up by a percentage point or so.

And there’s the rub for investors as they look ahead to 2015. At present the banking industry only has two catalysts reliable enough to help boost earnings. The first is more cost cuts. JPMorgan finance chief Marianne Lake assured investors on Wednesday that the “absolute dollar” figure would drop this year – but if revenue drops again, it won’t move the needle.

The second is a big rate hike. JPMorgan calculates a 1 percentage point increase would add $2.8 billion to pre-tax income. Bank of America would benefit by $3 billion. The added volatility that would bring ought also to boost trading revenue. For now, though, the signs are that the Federal Reserve will move far more slowly. For bank investors, it all points to another year of unimpressive returns.


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