BREAKINGVIEWS-Mega-banks wisely stay sober amid Trump 2.0 party

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Liam Proud

LONDON, Jan 15 (Reuters Breakingviews) - Investors and CEOs are salivating at the prospect of lower taxes and lighter-touch regulation under four more years of President Donald Trump. For big banks, it’s more complicated.

JPMorgan JPM.N boss Jamie Dimon acknowledged the buoyant mood when presenting his bank’s results on Wednesday. Soaring animal spirits benefit his shares, now trading at 2.6 times tangible book value compared with 2.3 on election day. Even perennial laggard Citigroup C.N, which also reported results, has seen its equivalent multiple tick up to 0.9 now, from 0.7 in November.

It’s easy to justify the glee. The Federal Reserve has watered down a controversial plan to hike the loss-absorbing capital banks are required to hold by a fifth. Announced tweaks to stress tests may further free up their coffers, shifts that Trump-appointed regulators could magnify. Meanwhile, rising yields on U.S. government debt should extend a multi-year boom in net interest income, or the revenue that banks generate from loans and bonds minus the cost of deposits. Dimon said in October that this figure would be under $87 billion in 2025, excluding JPMorgan's markets businesses. Now, he reckons it will be $90 billion.

It’s perhaps surprising, then, that Dimon is sticking with JPMorgan's relatively cautious balance sheet, with lots of cash-like assets and about $50 billion of surplus equity capital, according to Breakingviews estimates.

Thing is, it’s tough to put the capital to work. Options to burn through the excess include M&A and buying back JPMorgan’s stock, both of which would be extremely costly given high valuation multiples. Alternatively, using spare capacity to boost lending may require servicing unduly riskier borrowers. Dimon said on Wednesday that he also opposes the idea of paying shareholders a giant special dividend, preferring to keep options open.

Separately, it also makes sense that JPMorgan, Citi and peers like Bank of America BAC.N would prefer to own safe, short-term securities and cash. Sure, they could try to juice revenue by rebalancing their portfolios towards long-term bonds, which once again yield more than shorter maturities. But it would be, for now, a modest bump: 10-year U.S. government debt offers just 0.4 percentage points more than two-year securities. The danger of incurring losses by moving too early ahead of a further widening is paramount, especially since Trump’s policies could boost inflation.

By process of elimination, then, prudence looks like the right path for Dimon and his peers, even as the rest of the financial sector goes wild.

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CONTEXT NEWS

JPMorgan on Jan. 15 said that it expects to generate roughly $90 billion of net interest income in 2025, excluding the bank’s markets businesses.

That is less than the $92 billion the bank generated in 2024, according to full-year results released on Jan. 15, but much more than the lender had been promising in the recent past. Back in October, presenting the group’s third-quarter results, Chair and CEO Jamie Dimon said that the 2025 figure would probably be below $87 billion.

Citigroup said that its 2025 net interest income, excluding markets revenue, would be “up modestly” compared with 2024’s $47.1 billion.

(Editing by Jonathan Guilford and Streisand Neto)

((For previous columns by the author, Reuters customers can click on PROUD/
liam.proud@thomsonreuters.com))