J.P. Morgan corporate deposits surge by $48 billion surpassing Citigroup in Q4
The top four US banks received $74 billion of new corporate deposits in the fourth quarter, as they reap the rewards of account consolidation and technology initiatives.
In the final quarter of 2020, Corporates deposited $74 billion as compared to the previous quarter bringing the total corporate deposits at J.P. Morgan, Citigroup, Bank of America and Wells Fargo to $2.23 trillion which is 20% higher than the end of 2019. In this quarter, J.P. Morgan overtook Citigroup as the largest US transaction bank, as measured by corporate deposits standing at $683 billion versus $651 billion at Citigroup.
At the height of the pandemic, corporates in the US were drawing down loans and building up their liquidity. In Q1, US corporates had deposited over $200 billion at JP Morgan, Citigroup and Bank of America. In the second half of last year 2020, corporates repaid their loans with funding from the capital markets.
In terms of the highest jump in corporate deposits, J.P. Morgan managed to post a 41% increase from 2019 followed by Bank of America and Citigroup by 28% and 21% respectively. Wells Fargo posted a decline of 9.5% in corporate deposits in 2020 compared to 2019.
The increase in deposits has come at a time when treasurers are receptive to the idea of consolidating bank accounts with a single provider, which plays to the global scale of the biggest US banks. An example of this was the move by Fiat Chrysler Automobiles to consolidate all its legacy European bank relationships with Citi.
Another advantage of the US banking giants is investment in technology. According to a recent case study published by J.P Morgan, consumer goods multinational Unilever’s treasury was attracted by the bank’s API solution, and last year consolidated 130 bank accounts with JP Morgan.
By contrast, corporate loan balances at the banks continued to decline as clients found ample funding in buoyant capital markets. Q4 saw a dip by $68 billion which is a second straight quarter in decline for corporate loans. In 2020, corporates have collectively reduced their loan books by $71 billion. The corporate loans at J.P. Morgan, Citigroup, Bank of America and Wells Fargo stood at $1.53 trillion at the end of 2020. In terms of percentage, only J.P Morgan saw an increase of nearly 4% while Citigroup, Bank of America and Wells Fargo saw a decline of 2.3%, 8.2% and 9.6% respectively.
“The decline in commercial loans from the third quarter was driven by lower commercial and industrial loans as demand remained weak and line utilization continued to be very low amid strong capital markets and soft economic background”, said Mike Santomassimo, Chief Financial Officer at Wells Fargo.
In the third quarter, corporate loans dropped by $166 billion compared to previous quarter at J.P. Morgan, Citigroup, Bank of America and Wells Fargo. The drop in loans came due to the raising of cash from capital markets in form of equity and debt issuance and reducing deposits.
“Driven by capital markets for the high – the GCIB clients and soft loan demand as people gathered their – wits about them in the crisis move to a different stage, we saw a significant pay down in loan balances. During the last two months of the year, we see more stable results that we hope can continue to turn in decreased demand and growth as we look forward”, said Brian Moynihan, Chief Executive Officer at Bank of America.
The reduction in corporate loans has come up due to high activity in equity and debt issuance for corporates. Banks have increased their revenue in advisory, equity underwriting and debt underwriting.
The rise in corporate deposits in 2020 amongst banks has put pressure on the transactional banking revenue. J.P Morgan saw a rise of 4% in wholesale payments in Q4 2020 from the previous quarter while the growth of 11% from Q4 2019. Citigroup posted a growth of 0.25% from Q3 2020 to Q4 2020 and a decline of 8% from the previous year. Bank of America too had a flat growth of 0.5% in Q4 2020 from the previous quarter while a decline of 24% from the previous year, highest amongst these banks.
“Treasury and trade solutions revenues were down 8% as reported and 6% in constant dollars, as strong client engagement and solid growth in deposits were more than offset by the impact of lower interest rates and lower commercial cards revenues”, said Mark Mason, Chief Financial Officer at Citigroup.
J.P. Morgan saw a rise of $654 million in its investment banking fees in the fourth quarter of 2020 as compared to the same period last year. For Bank of America, it was $412 million while Citigroup saw a decline of $64 million.
“In investment banking, IB fees were up 25% for the year and we grew share to its highest level in a decade. In the quarter, investment banking revenue of $2.5 billion was up 37% year on year, and up 20% sequentially. The quarter’s performance was driven by the continued momentum in the equity issuance market as well as strong performances in DCM and M&A”, said Jennifer Piepszak, CFO at J.P. Morgan.
Adding further she said, “The M&A market continued to strengthen this quarter, and in fact, announced volumes exceeded pre-COVID levels”. The bank posted an 18% rise in advisory fees Q4 2020 from the same period previous year.