JPMorgan went on a shopping spree in 2021 to secure its present leadership far into the future. This was at the same time as its already large share of US deposits – driven even higher by savers’ flight to safety in the pandemic – prevents it from buying banks in its home market.
Among 30 or so bolt-on deals, it acquired OpenInvest in June. OpenInvest is an environmental, social, governance (ESG) investment management products and impact reporting services company.
In September, JPMorgan took a 75% stake in the payments platform of Volkswagen Financial Services, which provides purchase and lease finance as well as in-vehicle mobile payments for subscriptions for parts, for entertainment, parking, refuelling and generally buying stuff from connected vehicles. It is a new and growing business that fits with a bank positioning itself at the cutting edge in payments technology.
Also in June, JP Morgan took a 40% stake in C6, the Brazilian full-service digital bank, and purchased UK wealth management platform Nutmeg. That becomes part of its new UK digital bank, a first step in building a retail bank outside the US. Chief executive Jamie Dimon describes that as a 10-year project.
These deals came as the bank strove to see off the threat of future disruption even while its own expectations back at the start of 2021 for the core businesses proved unfounded.
Jeremy Barnum, chief financial officer, explains: “In 2020, strength in markets and investment banking went a long way to offset the unstable dynamic in consumer, the impact of lower rates and the big growth in credit reserves. At the start of 2021, we expected a normalization as the economic impact of Covid waned. The continued extraordinary strength in investment banking and only modest decline in markets, combined with continued appreciation across global asset markets benefiting our asset and wealth management businesses, was a welcome surprise.”
The bank also benefited from state support for households and businesses that kept charge offs and delinquencies “incredibly low”, according to Barnum.
But he points to the revenue headwind: “The after-effects of all the government support are non-trivial. Households have so much cash that credit-card loan growth, for example, has been severely depressed.”
The after-effects of all the government support are non-trivial
Jeremy Barnum
Looking ahead, Barnum says that what the bank originally expected in 2021 probably must happen eventually: a normalization of the investment banking fee wallet and market earnings. As to the likely benefits of rate rises, Barnum is cautious.
“We have taken a patient approach to deploying the liquidity generated by our strong growth,” he says, “and, as a result, are positioned to benefit if or when there are rate hikes in 2022. However, tapering only slows the pace of central bank balance-sheet expansion, which just gets to neutral when tapering ends. And there may be a gap of many months between the end of tapering and rate rises.”
And on asset quality?
“On the corporate side broadly defined, I don’t see an issue in the medium term, given the health of corporate balance sheets and access to capital markets,” Barnum says. “The consumer side is a lot more complicated. The current loss experience in cards is quite abnormally low. As the consumer begins to re-lever, we expect that to come with higher charge-offs.”
