JPMorgan Chase’s Commercial Banking Thrives on Lending, Rates


Feb. 1 2018, Updated 3:33 p.m. ET

Commercial Banking segment

JPMorgan Chase’s (JPM) Commercial Banking segment has seen benefits of strong corporate lending and higher net interest margins (or NIMs) in recent quarters. For 4Q17, the segment posted revenues of $2.4 billion in 4Q17 compared to $2 billion in 4Q16 and $2.1 billion in 3Q17. Revenue growth was driven by higher lending, deposit spreads, and a benefit of tax cuts and Jobs Act changes. The segment’s net income grew 39% to $957 million, which included a one-time benefit of $115 million. Net income grew on higher net interest income and reserve release, partially offset by higher spending.

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The Commercial Banking segment reported 7% YoY (year-over-year) growth in loan balances to $203 billion. It reported 9% growth for the Commercial and Real Estate group and 6% growth for the Commercial and Industrial group. The traction in real estate lending indicates a renewed interest in the sector resulting from wealth creation and higher home prices. The segment’s client deposits grew 1% on a YoY basis to $182 billion.

Reflecting a better economy

JPMorgan Chase’s Commercial Banking segment has expanded lending activity in the United States amid improving fundamentals and global growth. Macros should continue to drive lending in 2018. The segment’s net income was $957 million in 4Q17 compared to $687 million in 4Q16 and $881 million in 3Q17. Its ROE (return on equity) improved to 18%, reflecting operating efficiency and higher NIMs.

Bank of America (BAC), Citigroup (C), and other major bankers (XLF) have been able to improve their ROEs, whereas Wells Fargo (WFC) has been able to maintain its efficiency ratios and ROE in recent quarters. Rate hikes in 2018 could support the continued expansion of NIMs; however, they’re expected to peak by mid-2018. Credit offtake could continue to be a key for growth in net interest income for commercial bankers.


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