JPMorgan/Wells Fargo

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“If you’re not fearful, you’re crazy,” barked chief executive Jamie Dimon on Wednesday, even as JPMorgan Chase produced a profit for the third quarter. Fear, though, is driving investors towards the fortress balance sheet of JPMorgan – and fellow survivor Wells Fargo, which also posted better-than-expected earnings. The pair are pocketing a “crisis dividend”, sucking in deposits and customers from beleaguered peers – as well as, of course, swallowing vanquished banks whole.

Relative strength is the best hope that bank investors (and customers) have. Wells Fargo’s deposits soared by an annualised rate of 30 per cent during the quarter, while anxious types opened 1m new current accounts at JPMorgan. Commercial borrowers, finding the bank manager’s door barricaded elsewhere, are turning towards the industry’s strongest.

The calamity-boost cannot last. And back in the real world conditions continue to deteriorate, with the banks’ downside tied to the grim prognosis for the US economy. Losses related to home equity and mortgages were worse than feared. Even in prime mortgages, where total net bad debt expenses at JPMorgan have increased by 20 times since last year, the forecast is for a sharp ascent into next year. Losses related to credit card borrowings will also worsen, while relatively robust areas, such as commercial lending, will inevitably deteriorate in line with unemployment, consumer spending and the ever-gloomier housing market.

JPMorgan can, at least, point to resilience in its investment bank, for those who can hold their nose and look past $3.6bn of writedowns on mortgage assets and leveraged lending. A strong trading performance underlines the bank’s ability to perform in erratic markets, while it has wrested market share from competitors across the business. Any optimists left standing will see strong foundations here should the economy recover. But faced with a deeper downturn investors would do well to avoid the pair of them.

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