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JPMorgan’s Core Banking to Outperform Peers in 2018

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Core banking

JPMorgan Chase’s (JPM) Commercial Banking segment is outperforming peers in terms of deposits, lending, and market share gains. The segment has witnessed higher corporate lending and net interest margins (or NIMs) in recent quarters. The segment posted revenues of $2.4 billion in 4Q17, up 20% from 4Q16. Growth in deposits, lending, and higher spreads, as well as lower taxes, helped its performance. Its net income grew 39% to $957 million. Net income expanded on higher net interest income (or NII) and reserve release, partially offset by higher expenses.

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JPMorgan’s CB saw healthy 7% growth in loans amid a weaker environment of credit offtake due to higher rates and lower taxes. The segment managed 9% growth in real estate and 6% in commercial lending. On the other hand, CB’s total deposits grew by 1% to $182 billion. Credit offtake is expected to slow down marginally in 1Q18. However, the bank is expected to outperform peers and continue to gain market share.

Higher RoE

The Federal Reserve has raised rates for the first time in 2018 by 25 basis points, which is in line with its targeted three to four rate hikes in the current year. Rate hikes have helped major bankers (XLF) including Citi (C), Bank of America (BAC), and Wells Fargo (WFC) in an expansion of spreads and NIMs. The segment posted net income of $957 million in 4Q17, up from $687 million in the prior year. JPMorgan has managed a healthy return on equity of 18% for the segment, reflecting higher operating margins for the given book size.

The trend of higher spreads will likely continue at least for 2018 amid rising rates, and it’s expected to stabilize in 2019 depending on the future trajectory of rate hikes.

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