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🥇 And the most profitable bank ever is...

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| Delta soars | JPMorgan dazzles |
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Hi John, here's what you need to know for January 15th in 3:07 minutes.

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Today's big stories

Shares of US carrier Delta Air Lines jumped 4%, fueled by cheap, er, fuel – and soaring domestic demandSmaller stocks should be on the up, but it’s the biggest US companies that keep getting bigger – Read now: iPhone · AndroidJPMorgan Chase reported the best year for any US bank in history, thanks to a surge in bond trading revenue last quarter
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Business Class

What’s Going On Here?

Delta Air Lines shareholders were dealt a pleasant surprise when they checked into the market on Tuesday: the carrier’s stock price got a 4% upgrade after quarterly earnings beat expectations.

What Does This Mean?

Delta’s financial results for late 2019 overshot the runway: revenue was up 6.5% on a year before, while profit flew more than 30% higher. That was partly down to cheaper fuel lowering costs and domestic demand from US flyers hitting an all-time high over the holiday season. But Delta also banked on the sale of its stake in Brazilian airline Gol, recently ditched in favor of an investment in larger competitor Latam.

Delta cemented its status as a high-flyer, too. Revenue from its premium cabins – business and first class – grew 9%, twice as fast as economy-class revenue. There may be some mild turbulence ahead, however: the airline said flying costs could rise by up to 3% this quarter, partly due to higher staff salaries.

Why Should I Care?

For markets: Boeing, Boeing, gone.
Another contributor to Delta’s quality quarter was the Boeing 737 Max debacle. While Delta doesn’t fly the grounded plane, its competitors do – so when they canceled flights, travelers turned to Delta instead. If and when Boeing’s jets get set to fly again, Delta could lose out. But its loss may be America’s gain: the US treasury secretary warned on Sunday that Boeing’s woes could reduce US economic growth this year by 0.5 percentage points.

Zooming out: Vertigo or acrophobia?
Air travel is a mercurial industry, and success often lies outside companies’ hands – as the recent mixed fortunes of two European airlines lay bare. Low-cost Irish carrier Ryanair raised its earnings forecast last week, saying bumper Christmas bookings could boost profit by $165 million. UK regional carrier Flybe, however, is flying on empty: a weak pound and Brexit uncertainty have hurt its bookings, forcing it to look to the UK government for a parachute.

Recommended: Warren Buffett’s a big airline investor. Find out why he likes Delta on iPhone or Android.

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2/3 Premium Story

Big Is Beautiful

The current US economy – with its steady growth and declining interest rates – should favor smaller companies. Yet in recent years the opposite has proved true: the big just keep on getting bigger. Broker and fund manager Charles Schwab now thinks it has an explanation…

Get the full story on iPhone or Android.

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Step Right Up

What’s Going On Here?

US investment bank JPMorgan Chase proved its strength and won a prize when it announced financial results on Tuesday: exemplary earnings meant its 2019 was the most profitable year for any US bank ever (tweet this).

What Does This Mean?

JPMorgan reported a 21% surge in profit last quarter from a year before, largely driven by a 56% increase in trading revenue. Bond trading was especially brisk: the bank made almost $1 billion more than it expected thanks to a particularly busy end to the year.

JPMorgan wasn’t the only bank to nail last quarter either. Rival Citigroup also surpassed analysts’ expectations in its results on Tuesday: both revenue and profit were up, with Citigroup’s bond business also benefiting. Its investment banking division did better than expected, too: a series of big deals hammered through last quarter helped ring up a 6% year-on-year revenue increase.

Why Should I Care?

For markets: The rate escape.
Banks spent much of 2019 grappling with the fallout from falling interest rates. When interest rates are higher, banks can charge more for loans and in turn make more money. But when rates are cut – as happened three times last year – their interest income declines. At Wells Fargo, which also reported results on Tuesday, quarterly interest income dropped 11% compared to a year before. But the bank can take some comfort from the boost in mortgage demand that also accompanies lower rates: it extended 58% more loans last quarter than it did in the same period in 2018.

Zooming out: In the cooler.
JPMorgan and Citigroup’s impressive results may justify their stocks’ impressive gains over the past year. In fact, the banking sector as a whole had its best year since 1999 in 2019, with stocks surging an average 36%. But investors don’t expect the good times to continue. They’re forecasting a $10 billion drop in profits for 2020, thanks to low rates and an economic slowdown that could conspire to reduce banks’ revenues.

Recommended: Interest rates affect all aspects of the economy. Find out how on iPhone or Android.

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💬 Quote of the day

“My work is a game. A very serious game.”

– M.C. Escher (a Dutch graphic artist)
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🤔 Q&A

“Why do companies buy back their shares?”

– Kieron

“There are a few reasons, Kieron. For one, it’s a tax-efficient way to make shareholders happy: reducing the supply of publicly available shares boosts the prices of those that are left. Reducing the number of shares also increases earnings per share (EPS), making a company look more profitable even if nothing’s changed. That’s especially tempting for executives who are often rewarded based on EPS growth and who – since they control the timing of buybacks – can cash out their own shares accordingly. That may be one of the reasons US companies spent more than $4.3 trillion on share buybacks between 2009 and 2018 – and why some US politicians are now seeking to restrict the practice.”

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⚡️ Lightning insights

The average house price is around £460,000 in London and $680,000 in New York. No wonder renting’s become more popular in recent years…

Our analysts have weighed up the pros and cons of buying and renting your own place, and broken down what each means for your long-term finances. You’ll find it all in our Pack, Housing: Rent or Buy.

📚 What we're reading

The most exciting tech in 2020 (Popular Mechanics)It’s the dawn of a new robot lifeform (New Atlas)Is the American Empire crumbling? (Literary Hub)
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