JPMorgan Chase & Co. reports earnings on Friday, and Chairman and Chief Executive Officer Jamie Dimon is bound to have some choice words about the state of his industry when he sits on a call with investors at 8:30 a.m.
In the past, Dimon has bemoaned growing competition from non-banks. Three years ago, he highlighted how stricter regulatory oversight was pushing some traditional banking business lines into the arms of shadow banks. “They’re dancing in the streets,” he said last year of hedge funds, private equity and private credit firms that avoid stringent bank capital requirements. Each year, his annual shareholder letter tracks how banks’ share of the overall financial system has shrunk while shadow banks have grown.
Last year was no exception. The latest data from the Federal Reserve reveal that bank assets grew by just 2% in 2023, constrained by an evaporation of deposit funding, where volumes were down 2%. Granted, bank performance did not deteriorate as markedly as it might have following the collapse of several regional banks earlier in the year: In the fourth quarter, loans grew by 5% on an annualized basis as deposits rebounded, up 8%. But it wasn’t enough to offset the entrenched trend that banks are simply losing share.
In commercial lending, banks have grown balances by around 20% over the past five years, which compares with 35% growth in the non-bank sector, according to Fed Flow of Funds data examined by Autonomous analyst Brian Foran in a recent report. The divergence stems largely from private credit. No wonder JPMorgan wants to muscle in. The firm has reportedly been in discussions with partners to kickstart its own private lending push.
Yet although much attention has been lavished on private credit, it’s in consumer categories that non-banks have really taken share. In auto lending, banks have grown assets by around 20% over the past five years, compared with 45% at non-banks. Banks consciously pulled back in 2022 as higher rates squeezed profitability in the segment, with credit unions the first to pick up the slack before specialist auto-finance captives took over. In 2023, captives increased their share to 30% of the market, according to Experian data, leaving banks with just a quarter of the market, down from from a third two years prior.
In residential mortgages, too, banks lag their non-bank peers. They grew mortgage assets by 10% over the past five years while non-banks grew at 30%. Indeed, the top four banks now originate less than a tenth of all new residential mortgage loans, down from over half in 2010.
