JPMorgan dominates the banking landscape

JPMorgan Chase & Co. is an American multinational financial services firm based in New York City and incorporated in Delaware. It is the largest United States lender and the world’s largest bank by market capitalisation as of 2023. 

Succession plans for CEO Jamie Dimon

According to the latest news, on Thursday (25 Jan.), JPMorgan Chase rotated its executives across investment banking and consumer units, in an attempt to offer them more experience running different departments. This is part of Wall Street’s plans for the succession of CEO Jamie Dimon.

For the consumer division, JPMorgan appointed Marianne Lake as CEO. The division was previously run together by Lake and Jennifer Piepszak. The company’s merged commercial and investment bank will be run by Piepszak who will become co-CEO with Troy Rohrbaugh, who formerly led trading and securities services.

Commenting on the news, Stephen Biggar, a banking analyst at Argus Research explained that “The expansion of Jennifer Piepszak’s role in commercial banking and investment banking gives her an edge in the succession planning” and broader experience.

The succession plans undertaken by JPMorgan are not unique among Wall Street banks. Many banks have shuffled executives around divisions to give them more experience. Morgan Stanley has appointed a new CEO Ted Pick who took over at the start of the year from James Gorman who had run the bank for 14 years. Peter Orszag became the new CEO at Lazard in October.

The biggest US bank

JPMorgan dominates the banking landscape. The Wall Street lender is the biggest US bank when it comes to profits, deposits and branches, and takes almost a fifth of total US bank profits.

For example, in the first nine months of 2023, JPMorgan Chase captured almost a fifth of all US bank profits, despite the turmoil in the financial sector. According to the Financial Times’ calculations, its US banking subsidiary brought in $38.9bn in profits, accounting for 18% of the industry’s total. If this trend continues for the rest of the year, JPMorgan will command a massive share

of industry profits since 2009. The earnings for the period have also surpassed those of Big Four competitors Bank of America and Citigroup combined. Wells Fargo analyst Mike Mayo described JPMorgan as the Goliath of Goliaths. 

While the numbers may not be thorough, we need to take into consideration that the data refers to profits from subsidiaries with Federal Deposit Insurance Corporation-insured deposits. It also includes earnings from other divisions that other competitors do not tend to include, such as JPMorgan’s earnings from commercial and retail banking, investment banking and trading.

Acquisitions

The impressive numbers also reveal how well CEO Jamie Dimon navigated the business landscape, grasping acquisition opportunities and benefitting from competitor mistakes. Like other big banks, JPMorgan has benefitted from higher interest rates, which it allowed it to impose higher rates on borrowers. More importantly, its purchase of First Republic gave it a competitive edge. Former president of the Boston Fed, Eric Rosengren, explained that “JPMorgan Chase has been very effective at being in the right place at the right time when distressed sales were available.” And JPMorgan’s profits from the First Republic deal were instantly noticed.  According to BankRegData, in the second quarter of 2023, following the deal, JPMorgan made almost 20 cents out of every $1 in profit reported by US banks.

Competitors’ mistakes

Bank of America (BofA) suffered more than $100bn of paper losses on bonds which it bought before the Fed increased rates. Wells Fargo’s profitability has been hurt after the bank was punished with an asset cap in 2018 for opening millions of false accounts. Citi’s subpar performance has led to a painful reorganisation. JPMorgan stands out because they managed to put out the highest return on equity among their rivals, despite their size.

JPMorgan’s deposits grow

JPMorgan’s deposits have grown the last two decades, unlike its rivals. The bank has currently $2.5tn of deposits. This is more than 13% of the industry total. When Dimon took over as CEO, JPMorgan held around 8% of US bank deposits. The bank is expected to continue to grow its deposit with Marianne Lake, JPMorgan’s co-head of consumer banking, saying that the bank will continue to open new branches, invest in technology and hire more bankers. She said: “It’s the product of the 10 years of investments we’ve made and the 10 years we’re about to make that’s going to continue to see that kind of growth going forward.”

Interest and deposits

One of the perks that JPMorgan has enjoyed is not paying interest to a higher percentage of bank deposits. This allowed it to offer loans or invest these deposits to earn a profit, and mad huge gains as interest rates continued to rise. Savers also see the bank as a reliable bank which has an implicit government guarantee on its deposits. Smaller banks face challenges from depositors, such as savers who worry about exceeding the $250,000 limit covered by government-backed insurance or from depositors who demand more attractive interest rates. 

James Dimon and US banks

A lot of things have changed since James Dimon became CEO of JPMorgan in 2006. For one, at the time, the US had more than 7,600 banks.  According to BankRegData, there are now around 4,300 banks with the majority being local banks with less than $10bn in assets. 

2021 was an important year for JPMorgan. The bank had more branches than any other bank in the US and also succeeded in having a Chase branch in all of the 48 continental US states. Despite a decline in bank branches, JPMorgan considers physical banks as a key path for its expansion and growth. For example, the establishment of Chase branches since 2017 have helped to add around $85bn in deposits.

Succession and future

Dimon’s eventual successor will have to deal with higher capital requirements that Dimon has argued will limit bank lending in the economy.

Jennifer Piepszak, Marianne Lake and Troy Rohrbaugh are potential candidates to replace him and have taken on new responsibilities in consolidated businesses. Announcing the changes, Dimon said in a statement: “JPMorgan Chase is stronger today than it has ever been, and this is thanks to our hundreds of thousands of employees and our superb senior management team.”

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