Loan Growth, But Little to Show for It, at JPMorgan Chase and M&T

Fourth-quarter results at JPMorgan Chase & Co. and M&T Bank Corp. suggest that growing loans right now may be akin to winning Olympic gold in curling: It's darn hard, admirable and not all that lucrative.

Loans at both banking industry bellwethers increased, albeit modestly, for the first time in several quarters as manufacturers, health care companies and other businesses around the country rediscovered an appetite for bank debt.

That's a positive development for an economy that depends on the willingness of people and corporations to borrow and spend. It's good news for JPMorgan Chase and M&T, too, solidifying their status as two of the strongest names in banking in the eyes of investors and clients. But the huge effort they've put into growing loans, and the minimal payoff it delivered in the fourth quarter, may bode poorly for less financially sound banks that are eager to reverse their own painful contraction of loan balances, experts say.

"Guys who are still internally focused, they're going to be behind the curve, 100%," said William Schwartz, senior vice president of financial institutions with the ratings firm DBRS.

And healthy, loan-hungry banks like M&T and JPMorgan Chase aren't going to make it any easier for them. "They may well be picking up customers from weaker banks," said Bert Ely, an independent banking consultant in Alexandria, Va.

JPMorgan Chase and M&T — which never lost money during the downturn — are both aware of where they stand in the competitive landscape, having put substantial financial muscle toward stealing depositors and borrowers from ailing rivals. As for the competition, "they are probably having a harder time," Ely said.

JPMorgan Chase's total loans grew 0.3%, to $693 billion. It was the company's first uptick in loans in two quarters, excluding an accounting change that required it to recognize a batch of securitized credit card loans in the year-ago period.

In commercial banking, loans to midsize businesses rose for the third straight quarter, by 3.5%, to $36.5 billion.

"It's modest," Doug Braunstein, the company's chief financial officer, told reporters. "Utilization rates, or revolvers, are pretty flat."

That modest growth was hard-won. JPMorgan launched a high-profile campaign over the summer to give lower interest rates to small businesses that promised to hire workers. It opened more than 100 branches in 2010 and added 700 more commercial bank employees. The effort helped the company sign up some 1,600 new business banking clients in the year, including 400 in the fourth quarter.

"We're growing — we got a lot of businesses," Jamie Dimon, the chief executive of JPMorgan Chase, said in a call with analysts on Friday.

"We never stopped making money," Dimon said. "We never stopped investing. The future is extremely bright, in spite of all the headwinds."

Net income at JPMorgan rose 9%, to $4.8 billion. But all the new activity on the lending side of the business didn't move the needle much. Total interest income was essentially flat, as were lending and deposit-related fees.

Dimon said the company expects continued loan growth and more signs of stabilization in its corporate, midmarket, small-business and consumer business lines. It could be slow going, though.

"It will filter through our numbers, at one point," Dimon said.

Rene Jones, the chief financial officer of M&T, had similar comments. He said the Buffalo, N.Y., company's 2.3% loan growth in the fourth quarter — its first loan increase in five quarters — is just a start.

"I think you're going to see that there's a trend across the board with an improvement in loan growth," Jones said in an interview. "I think that we'll end up participating in getting a larger share of that because we've been so stable in the last several years."

That stability, he said, was instrumental in M&T's 4.7% increase in commercial loans in the quarter. While other banks were laying people off to save money during the downturn, M&T, having skirted big problems in subprime lending, stayed profitable and made acquisitions. It now has about 13,000 employees at its 750 branches, from New York to Maryland.

"It's what we didn't do in the last three years," Jones said. "We didn't cut somebody's credit. … It's the people that we didn't lay off who have been out, day in and day out, with their customers," winning business for the bank.

But the thaw in commercial borrowing was not the main driver of fourth-quarter profits, which rose 6.5% from the prior quarter.

Jones said a bigger payoff came from relationships with long-standing commercial borrowers who delivered higher loan syndication fees, cash management services fees and advisory fees.

Interest income and the margin fell slightly, although cheaper funding costs gave a slight boost to net interest income.