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JPMorgan, Bank of America, Goldman Sachs, and Morgan Stanley all tapped the bond markets following stellar first quarter earnings.
Last Thursday, JPMorgan Chase (JPM 2.05% ) issued $13 billion in bonds -- the biggest bond deal ever for a bank. It held that title for one day, only to be topped by Bank of America's (BAC 1.83% ) own $15 billion bond offering Friday. Not to be left out of the party, Goldman Sachs (GS 1.87% ) and Morgan Stanley (MS 1.65% ) issued another $6 billion worth of bonds each.
Following a strong first-quarter earnings period, big banks took advantage of favorable credit market conditions that saw a high demand for corporate debt as well as cheaper funding costs.
These deals have gotten the attention of investors. In total, big banks issued $40 billion in bonds that investors gobbled up. For some banks, like JPMorgan, issuing bonds can help to alleviate some stress from changing regulatory requirements. Other banks issued bonds to take advantage of market conditions and to prepare for the Federal Reserve lifting restrictions put on banks last year.
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JPMorgan was the first of the major banks to tap the lending market following its solid first-quarter earnings report, which saw the bank post $33 billion in revenue, up 14% from last year and up 15% from its recent quarter.
Bloomberg analyst Arnold Kakuda said that JPMorgan's bond offering may be related to changes in regulatory requirements related to the supplementary leverage ratio (SLR). The SLR requires banks to hold capital that is equal to 5% of their assets for larger banks. Last year, the Fed provided relief on this requirement by allowing banks to exclude U.S. Treasuries and bank reserves from the SLR calculation. Federal officials allowed this relief to lapse on March 31 of this year. For JPMorgan, this presented a difficult situation.
The bank has been vocal for some time about the Federal Reserve allowing SLR relief to lapse. In the first quarter, the bank saw its SLR ratio, excluding the relief, come in at 5.5%, a notch above its 5% requirement. According to CFO Jennifer Piepszak, the growth in the bank's leverage was driven by deposits growing rapidly due to stimulus efforts by the federal government.
What has really put pressure on the bank is the growth in deposits without similar loan growth. As deposits grow, the bank needs to increase loan growth in order to keep its leverage ratio from getting out of whack. Unfortunately for the bank, average deposits in the first quarter were up 36% while average loans only increased 1%. Looking back at 2020, we can see that loan balances were steady, but deposits skyrocketed higher -- nearly 26%.
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