The 2023 Q2 earnings report for JPMorgan Chase has just been released. Overall, the ER is a remarkable demonstration of the durability and power of the top bank. JPM's results, both top and bottom line, exceeded market forecasts. The fact that the bank declared a solid balance sheet during and after a highly tumultuous time for the banking industry is, in my opinion, more significant.
The last one or two quarters have been described by certain media as the most difficult for banks since the 2008 crisis. JPM was able to keep a healthy standardised CET1 capital ratio of 13.8% even after the First Republic deal. J.P. Morgan was able to negotiate a favourable price because they were the only reliable buyer for FRC. In a back-of-the-envelope analysis of the transaction, Matt Levine of Bloomberg noted how J.P. Morgan receives good upside and regulatory protection while sharing a large portion of the potential losses if the loans default. Although the estimated $500 million in annual net income for the agreement is small in comparison to the $40 billion or so they already generate, it demonstrates that a bank like JPMorgan can take advantage of the crisis.
The bank currently has $1.4 trillion in cash and short-term securities, which is a lot of liquidity. I have no doubt that JPM will be able to fulfil these new standards and keep its fortress balance sheet, even though there may be some capital changes and liquidity in the near future as the banking industry adapts to new rules.
Given the current instability in the banking industry, regulatory standards may be modified in various ways. With Basel III's completion, Dimon himself anticipates “material changes” to capital and liquidity. He continued by issuing a warning that the market as a whole as well as end customers would probably be affected by these regulatory changes in the real world.
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