JPMorgan Sees Record Profit in Q2--How?
July 16, 2009
Following Tuesday's strong report from Goldman Sachs, JPMorgan reported a record profit of $2.52 billion during the second quarter of 2009. So much for the U.S. banking industry keeling over dead. In fact, less than a year after then Treasury chief Henry Paulson requested $700 billion to save the banks, the banks look quite healthy.
How exactly is JPMorgan doing so well?
Borrow Low, Lend Much Higher
Banks are benefiting in the extreme from the availability of zero interest loans from the federal government. With the Fed funds rate set at zero to 0.25 percent, it would be difficult for banks to not make money. Some, such as CIT, are able to pull of this feat, but as Larry Kudlow of CNBC put it:
"With a steep upward Treasury curve, even a banker can make money borrowing at near-zero and lending at much higher rates."
Deposit Base Growing
Another major factor in JPMorgan's success is the growth in deposits. Americans are saving more of their income, and putting that savings in banks. To find the best CD rates, the best savings account rates, and the best money market account rates takes some effort on behalf of depositors, but for banks, deposits are an automatic profit center as long as this influx of money can be lent out at good interest rates with appropriate risk management.
When will increased bank profitability trickle down to regular folks in the form of higher interest rates paid on deposits?
Stay tuned.
