JPMorgan’s upbeat trading in Q2 offsets its loan-loss provisions
The bank's second-quarter trading set a record, but it has yet to feel the effects of the US government’s stimulus measures tapering off
New York — JPMorgan Chase’s results are one more marker of the disconnect between ebullient markets and concern about the US economy.
The biggest US bank said second-quarter profit fell 51% to $4.69bn, a smaller drop than forecast, as record trading revenue helped counter the biggest loan-loss provision in the firm’s history. It’s the second consecutive quarter that trading set a record, as the bank’s Wall Street unit is helping prop up a consumer-lending division struggling with business closures and swelling unemployment rolls.
The firm’s fixed-income trading revenue doubled from a year earlier and the equity markets unit surged more than 30% as trading desks have benefited from a roller-coaster year. After the pandemic drove stocks into the fastest bear market ever in March, the S&P 500 mounted one of the biggest rallies in nine decades, boosted by stimulus measures and optimism over a swift economic rebound.
“We are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm,” CEO Jamie Dimon said in a statement. “This is why we can continue to serve all our stakeholders and to pay our dividend — unless the economic situation deteriorates materially and significantly.”
JPMorgan was the only major Wall Street bank that didn’t suffer a loss during the financial crisis, and the second-quarter results offer a hint at what’s to come when the rest of the largest US lenders report this week. The four biggest US banks’ combined earnings are expected to have fallen to the lowest in more than a decade in the second quarter, according to analyst estimates compiled by Bloomberg before Tuesday’s results.
The bank generated $9.7bn from trading stocks and bonds, 79% more than a year earlier, a bigger jump than analysts were expecting. That and a 91% gain in investment-banking fees helped the bank easily remain profitable even as it set aside a record $10.5bn to cover future bad loans, more than analysts expected.
JPMorgan rose 3% in early trading at 7.05am in New York. By Monday, the stock had fallen 30% in 2020.
Despite the surprise profit win, JPMorgan’s balance sheet is showing more signs of stress than it did at the end of the first quarter, when stay-at-home orders were still just a few weeks old. Net charge-offs, overdue loans the bank no longer expects to recover, rose 6% from the first three months of the year to $1.56bn in the second quarter, far less than the $2.78bn predicted by analysts.
Loan defaults could surge even more in the second half of the year as the effect of the government’s stimulus measures and the bank’s loan-deferral programmes start to wear off.
Other key results:
- Second-quarter net income fell to $4.69bn, or $1.38 a share, from $9.65bn, or $2.82, a year earlier. That beat the $1.01 per-share average estimate of 25 analysts surveyed by Bloomberg.
- Revenue from fixed-income underwriting rose 55% to $1.27bn as companies rushed to borrow after the US Fed set up an unprecedented series of programmes to support corporate debt markets and slashed interest rates.