RAROC profile and corporate credit pricing model derived from Pillar 3 disclosures.
JP Morgan is a United States-based bank with approximately EUR 1.3tn of corporate credit exposure (EAD) under the A-IRB approach to credit risk capital. The numbers below come directly from JP Morgan's most recent Pillar 3 CR6 regulatory filings and are used to model how this bank prices corporate credit facilities.
JP Morgan reports under the US advanced approaches framework rather than EU CRR, so its disclosed PD and LGD averages are not strictly comparable to European peers. The bank's corporate book is heavily skewed toward investment-grade US corporates with revolving credit facilities, which keeps funded EAD low relative to committed exposure and flatters RAROC on drawn-equivalent calculations.
JP Morgan is mid-sized by corporate EAD (12 of 59). Its cost-to-income ratio of 52.0% is structurally efficient (+2.2pp vs the 59-bank cross-section average of 49.8%). The corporate portfolio is predominantly investment-grade, with an EAD-weighted average PD of 1.2% against a cross-bank average of 2.1%.
Because the bank runs the advanced IRB approach, its own LGD and credit-conversion models drive capital requirements, which on our comparable sample deal typically produces tighter minimum spreads than foundation-IRB peers with identical obligor risk. Unsecured LGD disclosed at 35.0% is -1.8pp against the 36.8% cross-bank average, in line with the peer median.
On the standardised BBB+ EUR 25M 5-year term loan used across every bank profile, JP Morgan lands top-5 (#3 of 59) on this standardised deal, with a RAROC of 8.12% and a minimum spread of 231bp to reach the 12% hurdle. Within United States specifically, the bank ranks #1 of 7 on this same calculation.
| Parameter | Value | What it means |
|---|---|---|
| IRB approach | A-IRB | How the bank computes risk-weighted assets |
| Cost-to-income ratio | 52.0% | Operating cost share of net revenue |
| Effective tax rate | 21.4% | Applied to RAROC numerator after EL and funding |
| Average corporate PD | 1.20% | EAD-weighted probability of default |
| Avg LGD (unsecured) | 35.0% | Loss share if borrower defaults, no collateral |
| Avg LGD (secured) | 15.0% | Loss share with eligible collateral |
| Funding spread | 10bp | Bank's wholesale funding cost above risk-free |
| Corporate EAD | EUR 1.3tn | Total exposure at default to corporates |
On a representative BBB+ rated, 5-year term loan of EUR 25M at 150bp spread with a 20bp commitment fee, JP Morgan would generate an estimated RAROC of 8.12% against a typical 12% bank hurdle rate. To hit that hurdle on this exact deal, the bank would need a minimum spread of 231bp. This deal is below target — the bank would likely push for higher pricing or additional ancillary business.
| Component | Value |
|---|---|
| Annual revenue (spread + fees) | EUR 385,000 |
| Operating cost | EUR 154,000 |
| Expected loss (PD × LGD × EAD) | EUR 28,750 |
| Capital required (FPE) | EUR 2,451,320 |
| RAROC (after tax) | 8.12% |
| Min spread to hit 12% RAROC | 231bp |
Out of 59 banks in the OpenRAROC dataset, JP Morgan ranks #3 by RAROC on this sample deal.
| Rank | Bank | Country | RAROC | Min spread |
|---|---|---|---|---|
| 1 | Qatar National Bank | Qatar | 9.00% | 203bp |
| 2 | DBS Group | Singapore | 8.18% | 224bp |
| 3 | JP Morgan | United States | 8.12% | 231bp |
| 4 | ICBC | China | 8.06% | 233bp |
| 5 | China Construction Bank | China | 8.06% | 233bp |
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