JPMorgan Chase & Co reported a 155 per cent jump in profit on Tuesday, getting a boost from the release of loss reserves and a surge in dealmaking, even as the largest US bank dealt with a sharp slowdown in trading activity from last year's record-breaking levels.
The Wall Street behemoth, whose fortunes tend to reflect the health of the US economy, released another $3 billion (€2.54 bn) from the funds it had set aside last year in anticipation of a wave of pandemic-related loan defaults.
However, its trading business took a hit as financial markets calmed down after last year’s unprecedented volatility. The bank’s corporate and investment banking revenues declined 19 per cent, mainly due to a slump in bond trading.
Analysts have pointed out that the levels of trading activity witnessed last year were unsustainable.
Overall trading revenue slumped 28 per cent to $8.1 billion as bond trading slumped 44 per cent from last year. Equity markets was a bright spot, with revenue up 13 per cent.
JPMorgan’s consumer bank, which has been hurt by low interest rates, reported an 8 per cent fall in net interest income – the difference between what the bank earns from loans and pays out on deposits.
While average loans in JPMorgan’s consumer & community banking unit were down 12 per cent, there were signs that spending was bouncing back. Combined debt and credit card spend was up 22 per cent in the quarter compared to the same period in 2019, which is considered more reflective of normal spending patterns than last year’s quarter.
"While rates and loan growth continue to be headwinds in general, there are clear signs that the economy continues to improve," Evercore ISI analyst Glenn Schorr wrote, noting the uptick in credit card spending and client investment activity.
The broader interest rate environment is expected to improve this year as the economy continues to recover, which will likely buoy large lenders like JPMorgan and Bank of America.
JPMorgan’s shares were down less than 1 per cent in trading before the opening bell.
Despite the trading slump, overall Wall Street banking 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 special purpose acquisition companies (SPACs).
Goldman Sachs, Wall Street’s premier investment bank, blew past analysts’ estimates for second-quarter profit as Wall Street’s biggest investment bank also capitalized on record global dealmaking activity.
JPMorgan’s net income rose to $11.9 billion, or $3.78 per share, in the quarter ended June 30th, from $4.7 billion, or $1.38 per share, a year earlier. However, revenue fell 7 per cent to $31.4 billion.
Analysts on average had expected earnings of $3.21 per share, according to Refinitiv.
"This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits," said JPMorgan Chief Executive Jamie Dimon.
Excluding the boost from reserve releases, JPMorgan’s net quarterly profit came in at $9.6 billion.
Last year, banks were forced to set aside billions for possible loan defaults. But accommodative monetary policy and stimulus checks kept the American consumer healthier than initially feared, allowing banks to release more of their reserve capital.
Widespread vaccinations have led large parts of the United States to ease pandemic restrictions, setting the stage for a broader economic recovery. – Reuters