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Behind J.P. Morgan’s Rising Net Interest Margins and Income

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Commercial banking

JPMorgan Chase’s (JPM) Commercial Banking business garnered $2.02 billion in revenues and $799 million in net profits in 1Q17, which represents rises of 12% and 61%, respectively, on a YoY (year-over-year) basis. The rise in net income was mainly due to lower provision for credit losses, which reversed on releases from oil and gas portfolio holdings. Revenues rose mainly due to higher net interest income, fueled by rising rates and higher investment banking fees.

CB, Asset management

Notably, the division’s non-interest expenses rose by 16% on the hiring of bankers, technology investments, and impairment expenses on leased assets.

Asset Management declines

J.P. Morgan’s Asset Management business saw a lower net income of $385 million in 1Q17, as compared to $587 million in 1Q16 and $586 million in 4Q16. This decline was mainly due to higher non-interest expenses, which were driven by legal expenses. The division’s non-interest expenses rose by 24% to ~$2.6 billion YoY.

Generally speaking, asset managers have been facing competition for new fundraising from traditional managers such as BlackRock (BLK), T. Rowe Price Group (TROW), State Street (STT), and Vanguard, offering low-cost ETFs and index funds.

The rises in broader markets (IVV) have attracted long-term flows into equities across the regions and product categories. J.P. Morgan was managing $1.8 trillion on March 31, 2017, which represents a YoY growth of 10%. The division managed average loan balances of $118 billion, which is 7% higher YoY. About 77% of the bank’s mutual fund assets have ranked in the first or second quartile for the past five years.

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