Interest rates are creeping higher and banks are betting they will make money from the move. It's not surprising that JPMorgan Chase's $5 billion bet is the boldest, says Fortune, but it is unclear how that money will be made.

"As we currently are positioned, if rates went up 300 basis points, our pre-tax profits would increase by approximately $5 billion over a one-year period," Jamie Dimon, JPMorgan's CEO, writes in the annual letter to shareholders.

Banks' projections that higher interest rates will lead to higher profits seems logical based on the premise that the spread between their borrowing costs and their lending costs increases. But in the past, many banks have gotten burned by rising interest rates.

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Dimon admitted as much in his annual letter.

"While it is entirely possible that we will manage through the process without too much suffering, there also are some fairly coherent arguments that suggest there could be significant negative consequences. We cannot ignore this possibility and must safeguard against unintended and adverse outcomes," he wrote.

Dimon goes on to suggest that preparation is a key factor in determining whether banks benefit or suffer from rising rates. He explained the difference between two occasions in recent history when short-term and long-term interest rates rose about 300 basis points within a year.

In 1994, the move was unexpected and caused significant financial losses for many who were unprepared. In 2004, when the increases were foreseen, the damage was far more limited, he explained.

And although Dimon claims his bank is "positioned" and he appears to be vividly aware of the risks, Fortune says it's still very hard to see how the bank will make $5 billion from a 3 percent rise of interest rates.

Merrill Lynch released a report outlining the banks whose earnings per share are most sensitive to interest rates, according to MarketWatch. JPMorgan was not even on the list. Because their banking activities are so diverse and their operations are global, megabanks were considered cushioned from the impact of rate increases.

Fortune speculates that JPMorgan may have a stockpile of interest rate swaps. These derivatives would pay off in an environment of rising rates. But betting against rates and getting it wrong would be very risky for the bank that has yet to live down the London Whale losses.

Another possibility is that Dimon's $5 billion bet refers to lending profits, according to Fortune. But it notes that too is questionable. It is long-term rates that have been rising recently. And as Nomura pointed out in a recent report, lending profits do not witness substantial growth when short-term rates remain low.

Even analysts don't know where JPMorgan's potential billions will come from. Fortune says those analysts who were contacted haven't done the math and say even if they tried this would be a very complicated question to answer. Instead, they are just taking Dimon's word for it.

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