Last summer, Bloomberg‘s revelation that JPMorgan Chase & Co. (NYSE:JPM) received a de facto taxpayer subsidy of $14 billion made tongues wag for a time, but the subject eventually faded into the background. Of course, the Bank of Dimon wasn’t the only bank receiving a helping hand with its borrowing costs, but Jamie Dimon’s appearance in Washington to answer questions regarding the London Whale trading debacle naturally put his bank in the spotlight.
This year, the update on this issue has come out before the advent of spring, and the numbers have climbed a bit. Whereas last year’s news reflected a total subsidy, as of 2009, of approximately $76 billion for the 18 largest U.S. banks, the most recent article has bumped that amount up to around $83 billion. It is estimated that JPMorgan’s cut has risen to over $17 billion.
Five largest banks get the most gravy, but do they need it?
Bloomberg notes that, of that $83 billion, the top five banks gobble up about $64 billion. Besides JPMorgan, Bank of America Corp (NYSE:BAC) , Citigroup Inc. (NYSE:C) , Wells Fargo & Co (NYSE:WFC) , and Goldman Sachs Group, Inc. (NYSE:GS) all get a sizable chunk of taxpayer charity.
The article explains that the subsidy is an implicit part of the TBTF landscape, whereby these large institutions are considered so systemically important that they must be pampered like toddlers lest they topple and take the whole economy with them. We’ve already been there, of course, and this seems to be the way the big banks’ supposedly fragile ecosystem is being handled since the financial crisis.
This subsidy isn’t direct, but it comes about as banks receive extremely favorable financing terms because creditors assume they will be rescued if anything goes awry. Still, it’s a lot, and it makes you wonder whether these banks really need this much support. Unfortunately, it appears they do.
B of A and Citi: negative profit without the subsidy
From Bloomberg’s calculations, which were annualized over 10 years, JPMorgan would make a small profit without the subsidy, as would Goldman. B of A and Citi, though, would be in negative profit territory if the subsidy was taken away. Only Wells Fargo would produce a somewhat decent return without the additional backup.