RPT-BREAKINGVIEWS-Jamie Dimon puts JPMorgan in path of his own storm

By Stephen Gandel

NEW YORK, Jan 13 (Reuters Breakingviews) - Broken records have nothing on the boss of the largest U.S. bank. Even as JPMorgan JPM.N reported better-than-expected fourth-quarter results on Tuesday, its oft-gloomy CEO Jamie Dimon warned again that investors are blind to mounting risks. Yet the lender’s continued expansion in trading, as well as its splashy acquisition of technology titan Apple’s AAPL.O credit-card business, will only increase exposure to any brewing market upset or consumer weakness. The fact that its corporate dealmakers are lagging just as M&A is reviving adds further discord to Dimon’s cautious tune.

Granted, JPMorgan’s fourth-quarter results evinced no signs of its boss’s prophesied economic woes. Spending on its credit and debit cards rose 7.3% year-over-year, to $512 billion. Lending rose 9%, the bank’s fastest pace of expansion since the post-pandemic rebound. Losses on loans in its existing business dropped, too.

The Apple Card acquisition conferred one blemish. Dimon has snagged a $23 billion portfolio from Goldman Sachs, the card’s original operator. The portfolio’s quality is reflected in a $2.2 billion provision for losses, a hefty sum that amounts to nearly 10% of the book. Total allowances for losses on JPMorgan’s existing credit-card business amount to only about 6% of its loans.

In addition to this rising consumer exposure, the bank is more dependent on the market. Trading-related assets rose 25% in the quarter to just over $800 billion. That’s paying off, for now: stock-market trading revenue leapt 40%, to nearly $2.9 billion. The bank's own measures of risk haven't risen dramatically from a year ago. It’s hard to see how a sustained downturn wouldn’t impact this revenue, though.

Fees from advising on corporate empire-building, especially as long doldrums for M&A left plenty of tie-ups on the table, might seem compensatory ballast. Problem is, revenue from investment banking surprisingly lagged, missing the lender’s own forecast from a few weeks ago and yet to show the uptick from a recent dealmaking rebound enjoyed by rivals. That's an area where JPMorgan may have to spend more for talent if it wants to continue to compete.

Investors have long praised Dimon's leadership in part because of the belief that he can see around corners and avoid incoming danger better than other bank CEOs. In reality, he has been a much better bank manager than economic forecaster. The hope is that this continues to be the case.

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CONTEXT NEWS

JPMorgan reported on January 13 that it generated $15.6 billion in profit in the fourth quarter, up 12% from the same period a year ago, excluding a one-time expense for its recent acquisition of technology company Apple's credit card business.