The banking sector was hit harder by the pandemic and lower interest rates. Still, only a few banks have managed to generate positive revenue growth and profits in the December quarter and expect to extend the financial growth momentum into 2021.
Excluding J.P. Morgan (NYSE: JPM), the stock prices of three other largest US banking giants are trading in red in the past twelve months.
JPM is up 2% in the last twelve months, while Wells Fargo (NYSE: WFC) stock is down 30%, and Bank of America (NYSE: BAC) is still struggling to trade in the green. Citigroup (NYSE: C) shares are down 19% in the last twelve months despite a strong recovery in the past few months.
Why is J.P. Morgan stock trading in green? Shares of J.P. Morgan rallied 37% in the last six months and are outperforming the broader market index since the beginning of 2020 amid its diversified business model.
Despite challenging environment and lower interest rate, JPM has delivered 3% revenue growth in the December quarter, driven by 37% growth in investment banking revenue and a 32% increase in equity markets revenue.
The bank has also been working aggressively to counter the threat of fintech with the digital bank’s launch. JPM chief Jamie Dimon warned that his bank should “be scared shitless” of fintech during an earnings call.
Diversification is key to success
Bank of America, Wells Fargo, and Citigroup have generated negative revenue growth for the December quarter. These banks are blaming the low-interest-rate environment for the year-over-year drop in revenues.
However, the market analyst believes big banking giants need to improve their revenue base and manage the rising competition from online platforms through new exciting product launches.
To expand revenue and compete with new digital players, the big banks need to invest significantly to automate routine aspects of underwriting and enhance the user experience by offering more digital services.
Anthony Woolley, UK Chief Information Officer at Societe Generale said.
“Capital markets and investment banking firms invested heavily in digitizing their front offices years ago because there was a commercial imperative to do so. While ROEs were high, there was less of an immediate need to innovate in the back office. That is no longer the case. The business model is changing, and we have to find new ways to reduce structural costs and simplify our architecture. We have to innovate, and we are engaging our people at every level in the organization in the innovation agenda.”