JPMorgan shares hit record as outlook brightens

Jamie Dimon has let it be known over the past few years that JPMorgan Chase is "under assault" from regulators and struggling with "anti-American" capital rules. It faces threats from cyber attacks - "growing every day in strength and velocity" - and competition lurking in new corners - China, say, or Silicon Valley.

You can add razor-thin lending margins, doubts over the future of universal banking, concerns over whether Mr Dimon has an adequate internal successor and persistently high legal expenses.

For a bank that was lauded for its resilience during the financial crisis, the more recent performance has been a slog: one scandal after another, each punished with a new level of zeal by US officials; Mr Dimon's cancer diagnosis; and five out of six quarters in which earnings fell short of analysts' expectations.

And yet the first-quarter results released on Tuesday provided a bright spot that could yet prove a more lasting shift in sentiment.

When investors added up all of Mr Dimon's complaints and factored in their own worries about the future, they sent JPMorgan's share price to a record high for the company in its current form.

The 2 per cent rise to $63.29 was the highest since March 2000 when Chase Manhattan surpassed $64 in the peak of the dotcom bubble. Chase bought JPMorgan later that year and then, in 2004, bought Bank One, the Chicago lender, in a deal that also brought with it Mr Dimon himself.

More appreciation from the stock market does not mean that JPMorgan's problems have disappeared. The bank announced another legal charge of $487m, predominantly related to an impending settlement with the Department of Justice over foreign exchange manipulation.

Net interest margin, the spread between the rate JPMorgan borrows and lends money, fell to a miserable 2.07 per cent as interest rates stayed stuck at historical lows.

But revenue growth was enough to overcome the weaknesses, and notably, the outperformance came from trading. "Clearly there was a blowout at FICC [fixed income, currencies and commodities trading] at JPMorgan and pretty good equity results," says Brian Foran, analyst at Autonomous Research. "Good for capital markets, not so good for traditional banking."

If there is one US bank that has benefited in recent years by doggedly sticking to its traditional lending roots, it is Wells Fargo, whose market value is more than $40bn higher than JPMorgan's even though its balance sheet is a third smaller.

The San Francisco-based lender once commanded a margin of 5 per cent, between the rate at which it borrows and lends, but it fell beneath 3 per cent for the first time in at least 18 years.

"It's a tough business when the Nims [net interest margins] get that narrow," said Mr Foran. Overall, net income fell 2 per cent to $5.8bn, the first year-on-year decline since 2008, while revenue rose 3 per cent to $21.3bn.

If ever there was a moment for Wells to tout the emergence of its investment bank it was with these results. Trading assets, for example, were up 31 per cent from the previous year to $63bn, while short-term investments were up a similar proportion to $276bn. In the first quarter, Wells broke into the upper ranks of global fee-earners from investment banking, rising to ninth and displacing UBS.

But executives resisted the temptation and shrugged off the increasing suspicion that the bank is stealthily building an operation that resembles some of the biggest players on Wall Street.

"We could care less if we're number seven, eight or nine," said John Stumpf, chief executive. "If competitors are doing more or less, God bless them. We don't see it as a standalone business - just one more way to help our customers succeed."

Even on the fringes of the top ten, Wells' wholesale bank is "a pimple on the face of the entire corporation", said Bill Smead, chief investment officer at Smead Capital, which has Wells as a top-10 holding in its value fund. "As a shareholder, I'd like to see them in the top five."

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