JPMorgan Earnings: Chase Bets The Bank On Digital Tech

The JPMorgan numbers were good enough to help spark an impressive rally on Wall Street Wednesday (April 13).

As widely reported, the net income was better than feared, and even the trading volume bested some of the gloomy projections – and on the Wednesday morning conference call, management stated that there had been a pickup in activity in March, which offset at least some of the slump that came in the first two months of the year.  That heartened investors, and it may be a read across, and a positive one, for other large financial institutions.

In the details offered by management and important across payments, JPMorgan saw strength across its consumer and community banking segments, with a ROE of 19 percent and average loans up 12 percent.  The core loans, as measured by mortgages and autos, were up 25 percent.  One standout was the active mobile customer base, up 19 percent to roughly 24 million users.  The business banking segment was up 4 percent.  The firm is going to continue to invest hundreds of millions of dollars in new businesses, calling digital technology out specifically in the Q&A with analysts (and which includes Starbucks and Chase Pay).  Cards remain competitive, said management, with Chase Freedom seeing strong activity and interest.

A few other data points and headlines may have gotten lost in the mix, and could have farther reaching implications than the JPMorgan data.

Wednesday morning also marked the debut of regulatory assessments that JPMorgan, and four other banks (for a total of five banks out of the eight tested) had not shown how they could go bankrupt without having disastrous implications for the financial system at large.

The banks have a few months, till October, to revise and re-present these so called “living wills” – but the caveat remains that regulators could mandate that more capital be held on balance sheets, which would imply some hobbling in the credit markets, as there would be less cash to spread around.  The Wall Street Journal reported that among the complaints were that JPMorgan’s model remains too complex and that plans to jettison some assets were not up to snuff.

Perhaps more importantly, the criticism extends to include liquidity, and models for maintaining that liquidity.  Liquidity is, at least in part, what drove the crisis of 2008 and beyond in the financial sector.  Living wills are designed to help provide an orderly unwinding of assets in the event of systemic pressures.  Citigroup was the only one of the big U.S. banks to gain approval Wednesday of its living will.

In the other bit of news to hit and have some read across banks (and consumers, and well, perhaps everywhere), China reported that exports were up 11.5 percent year over year in March, which marks the first increase since June, and which means that demand continues globally – and while one data point for one month is not exactly a trend, it does speak to some hope for stabilization in this hugely important country.  The fact that (adjusted for currency) imports to the region were basically flat also helps give a glimpse into resilience – which spells the eventual (perhaps, maybe) floor in some of the things that have bedeviled the banks, like energy.  For now, the bar is a low one, just the hint of positive momentum to carry shares higher.