How Does JPMorgan Chase Make Money?

Few companies make more money than JPMorgan Chase (NYSE: JPM). In fact, only one does: Apple (NASDAQ: AAPL). In the latest quarter, the nation's biggest bank by assets earned $6.7 billion, 13 times more than the average company on the S&P 500.

But unlike Apple, which has a straightforward business model selling computers, tablets, and, most importantly, smartphones, JPMorgan Chase's business is more of an enigma. The reason JPMorgan Chase seems so much more complicated than, say, Apple, is that it's a universal bank, as are Bank of America (NYSE: BAC) and Citigroup (NYSE: C). Banks like these have both commercial and investment banking operations.

Commercial banking

A commercial bank is the type of bank most people think of. It's a Main Street bank, focusing on making loans and accepting deposits, with the majority of income coming from the difference between the yield on those loans and the cost of deposits.

This is what the Chase side of the JPMorgan Chase empire does -- the two sides were brought together in the 2000 merger of Chase Manhattan Corporation and J.P. Morgan & Co.

All told, JPMorgan Chase generated $14 billion worth of revenue from its commercial banking operations last quarter. That was spilt between $12 billion in its consumer and community bank, which serves individuals and small businesses, and $2.2 billion in revenue from its commercial bank, which caters to larger businesses.

Investment bank

A second side of JPMorgan Chase's operations is its corporate and investment bank. These are the bank's Wall Street operations, if you will. As such, they represent the more mercurial way it makes money.

A bank's Wall Street operations tend to revolve around three types of activities. In the first case, investment banks offer advice to companies on mergers and acquisitions. They also help companies raise capital by underwriting stock and bond issuances. Finally, an investment bank is likely to have trading operations -- buying and selling stocks and bonds to make markets for their clients.

In JPMorgan Chase's case, it's the most dominant investment bank on Wall Street in two major product categories. It has reported $5.3 billion worth of investment banking fees so far in 2017, ranking it first in the industry over runner-up Goldman Sachs' (NYSE: GS) $4.5 billion in total investment banking revenue this year. It also leads in equity capital markets revenues -- i.e., underwriting stock and taking companies public.

All told, JPMorgan Chase reported a total of $8.6 billion in revenue from its corporate and investment bank last quarter, which adds up to a third of the bank's top line.

Wealth management

The final way JPMorgan Chase makes money is by managing assets for people and institutions. At the end of the third quarter, for instance, it reported $2 trillion in assets under management and $22 trillion in assets under custody. These are assets that its clients own but the bank administers.

This is a straightforward business model consisting of earning advisory fees and commissions by rendering services related to wealth management -- offering brokerage accounts, executing trades for clients, managing mutual funds, and so on.

In terms of revenue, JPMorgan Chase's wealth-management unit reported a $3.3 billion top line in the three months ended Sept. 30. This is smaller than its commercial and investment banking segments, but it nevertheless represents a nice addition to the New York-based bank, offering a stable stream of income that carries little risk.

In short, the best way to think about how JPMorgan Chase makes money is to break it down into a commercial bank, an investment bank, and a wealth manager all rolled into one.

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