JP Morgan has what people call a fortress balance sheet that has been built over time to endure any severe shocks that can come with little or no notice.
The interest rates have been kept low by the Fed and this has a direct impact on bank earnings as they receive a smaller amount of interest on the loans they provide. However, the important thing is the profits that a bank makes and these profit levels can be kept the same even if interest levels dip if the cost of borrowing of the bank is lowered.
But when looking at quarterly reports, it has revealed that JP Morgan has not been able to reduce its cost of borrowing to the level of some of its peers. The other issue is that Moody’s could downgrade JP Morgan’s credit-rating as soon as next month and this will further increase the cost of borrowing.
Additionally, the Dodd-Frank financial overhaul will have important effects for JP Morgan as it can make bond investors and rating agencies feel that the bulge bracket may have a smaller chance of getting bailed out and it will mean that JP Morgan will be faced with higher interest rates on its debt.
JP Morgan is to going to be in for a rough quarter and may have to look to get back some of the profits it may lose by using some established methods like initiating mortgages and trading more.
But other than this piece of negative news, there seems to be an overall positive result in the finance sector for this quarter with JP Morgan actually beating earnings expectations although profits fell by 3.1 percent. JP Morgan’s stock price also fell on Friday.