JPMorgan Chase & Co second-quarter profits jumped 155 per cent as the U.S. economy continued to rebound, but executives warned on Tuesday that the sunny outlook would not make for blockbuster revenues in the short term due to low interests rates, weak loan demand and a slowdown in trading.
The country’s largest bank, seen as a bellwether of the U.S. economy, was boosted by a surge in deal-making and the release of another $3-billion it had set aside to cover feared pandemic losses, even as trading revenues slumped 28 per cent from last year’s record-breaking levels.
As the national vaccination drive allows Americans to get back to work, JPMorgan’s results showed consumer spending was bouncing back.
Combined debt and credit card spending was up 22 per cent compared with the same quarter in 2019, when spending patterns were more normal. Travel and entertainment card spending returned to growth in June and was up 13 per cent on the same period in 2019.
“We have bright spots in certain pockets and the consumer spend trends are encouraging,” Chief Financial Officer Jeremy Barnum said on a call.
He cautioned, however, that with corporate clients and consumers flush with cash thanks to extraordinary economic stimulus and low interest rates, core lending revenues may not benefit this year from the economy roaring back to life.
JPMorgan’s consumer and community banking unit reported an 8 per cent fall in net interest income, while average loans were down 3 per cent. And even as profits reached $11.9-billion, overall revenues fell 7 per cent to $31.4-billion.
“Rates and loan growth continue to be headwinds in general,” Evercore ISI analyst Glenn Schorr wrote. He noted, however, that the jump in card spending and 9 per cent organic growth in client investment activity were “clear signs that the economy continues to improve.”
JPMorgan’s corporate and investment banking revenues declined 19 per cent, mainly due to a 44 per cent slump in bond trading activity from last year’s high, which bank executives had warned were unsustainable. Equity markets, which have been buoyed by a boom in initial public offerings, were a bright spot, with revenue up 13 per cent.
The bank’s shares fell by around 2.5 per cent by mid-day as financial sector stocks saw broad based declines on Tuesday.
On a call with executives, analysts questioned Dimon over the bank’s strategy to compete with digital upstarts at home and abroad – an area Dimon himself has said is a weakness for the industry – sparking frustration from the straight-talking CEO.
“My God, the company is doing quite fine,” Dimon exclaimed.
“Our bankers, our traders, our credit card, our debit card, our merchant services, our auto business, our digital, it’s doing pretty good.”
The bank is trying to crack Britain’s consumer finance market with slick technology-based offerings.
Asked whether the bank would consider boosting its dividend, which it said last month would be $1 per share for the third quarter, Dimon said he wanted to invest in growing the bank.
“We don’t want to raise the dividend so high that it cripples [our] ability to do other things.”
DEAL-MAKING CHEER
While trading revenue slumped 28 per cent to $8.1-billion, the overall Wall Street banking business remained strong during the first half of the year, driven by a record volume of large deals. Investment banking revenue rose to $3.4-billion as fees jumped 25 per cent.
Capital markets also remained active and a surge in IPOs more than made up for a slowdown in deals made through blank check mergers.
Goldman Sachs smashed analysts’ estimates for second-quarter profit on Tuesday as Wall Street’s top investment bank also capitalized on record deal-making activity.
JPMorgan’s overall profit exceeded analyst estimates, rising to $11.9-billion, or $3.78 per share, in the quarter ended June 30, from $4.7-billion, or $1.38 per share, a year earlier.
The country’s largest lenders last year put aside billions to cover pandemic loan losses which, thanks to economic stimulus, did not materialize, allowing banks to release those reserves.
“As we have said before, we do not consider these core or recurring profits,” Dimon said in a statement, noting that when stripping out the reserve release boost, quarterly profit was $9.6-billion.
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