Breakingviews

JPMorgan grows its market share in risky direction

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Workers are reflected in the windows of the Canary Wharf offices of JP Morgan in London September 19, 2013. REUTERS/Neil Hall/File Photo

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NEW YORK, Nov 23 (Reuters Breakingviews) - JPMorgan (JPM.N) and Goldman Sachs (GS.N) were among the lenders that were deemed more “systemically important” than they were a year ago by the Financial Stability Board on Tuesday. The global watchdog accordingly raised the amount of capital it thinks they should hold.

U.S. banks’ share of capital markets, mergers and trading revenue has been rising for years. So has their share of financial risk. Based on Breakingviews calculations using data released by the Federal Reserve and Bank of International Settlements, JPMorgan’s share of the world’s “total exposures” rose to 4% in 2020 from 3.8% in 2019.

Risk-taking is rewarded: JPMorgan trades at almost double its estimated year-ahead book value, according to Refinitiv – at least three times higher than Santander (SAN.MC), UniCredit (CRDI.MI) and Société Générale (SOGN.PA), which are in the FSB’s least-risky bucket. Since the end of 2019, Goldman’s total shareholder return was 4 times higher than the members of the Refinitiv Global Banking and Investment Services Index.

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Most lenders already hold more capital than required by either the FSB or the Fed, which ultimately sets capital rules for its domestic banks. While that’s a drag on returns, riskier banks plus risk-averse regulators are a net win for shareholders. (By John Foley)

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Editing by Swaha Pattanaik and Amanda Gomez

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