US Banks: Duration Exposure and Balance Sheet Positioning Will Affect NIMs and Profits in Future

JPMorgan has become an investor favorite in recent quarters because of its bumper profitability. In contrast, its peer, Bank of America, has fallen out of grace as its profitability remains uninspiring on a relative basis. We believe the recent divergence between these two banks is not because of a structural difference in their banking franchise performance. It is largely a function of how their balance sheets were managed during the liquidity boom following the pandemic. JPMorgan placed most excess deposits in short-duration assets, whereas Bank of America took on excessive duration risk by buying long-duration securities. This made JPMorgan much more asset-sensitive than Bank of America as we entered the interest-rate hiking cycle in 2022.