Good for Some

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4 min
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As the team's Capital Markets Analyst, Jacob conducts market and investment research and assists in the development of business strategy to serve our clients more effectively.
April 18, 2023

JPMorgan Chase is America’s largest bank and oversees $3.743 trillion in bank deposits.

Last Friday they reported first quarter financial results that showed how interest rate rises are great for some and detrimental to others. The bank reported a 25% increase in revenues and a 52% increase in earnings from the prior year. The growth resulted in new records in revenue and earnings.

Net interest income is a huge part of that. Net interest income is the spread the bank earns from paying you your savings account rate and the rate it lends your money out at.

You probably know anecdotally that the banks are paying less than 1% on the average savings account and treasuries are yielding north of 4%.

That led net interest income at the bank to skyrocket 78%. Most of which was driven by higher rates. The same higher rates that killed Silicon Valley Bank. Deposits at the large banks have seen net outflows for the better part of a year, which makes sense as inflation eats away at savings and people and businesses start investing in treasuries and money market funds.

The bank also saw enormous new account activity and money market inflows. That benefits the company’s main revenue source, net interest income, and its asset management business.

But not all is well. You don’t want to see major disruption in the financial system. Old accounts get rolled into new accounts. JPMorgan is not in the business of writing your mortgage or lending to your small town restaurant. They deal in large quantities. Those old accounts are the ones that provided capital to the backbone of the economy. Restricted lending equals restrictive economies. A clear picture into the eyes of the flow of capital, with big bank earnings, shows less capital in the main street businesses, where most business is done, and more at the Wall Street giants.

A unique position for the economy that will work itself out in time but proves the importance of diversification.

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