JPMorgan Chase: JPMorgan Q2 results: US lender beats estimates on trade increase, but loan losses loom
The U.S. lender’s larger loan loss allowance reflects damage from the coronavirus pandemic, but its performance in the markets bodes well for trading powers Goldman Sachs and Morgan Stanley, both of whom report later this week.
JPMorgan’s trading revenue jumped 77% in a quarter that saw record volumes in financial markets. Bond trading alone generated $ 7.3 billion in revenue, as central banks bought billions more of public papers as part of massive stimulus packages to deal with the pandemic.
While executives had indicated Wall Street trading desks would set records in the quarter, the jump was well beyond expectations.
The bank’s shares rose 2.2% as earnings and income beat Refinitiv’s consensus estimates, but building reserves of $ 8.9 billion painted a grim picture for the quarters to come.
Chief Executive Jamie Dimon warned this was not a normal recession and telltale signs of a slowdown may not be visible until early next year.
“Consumer incomes are up, savings are up and house prices are up. The recession part will come later,” Dimon said.
The bank now expects double-digit unemployment in the United States through the first half of 2021, but has warned it may not have much visibility into the damage it faces.
“Compared to the first quarter, our reserve building now assumes a more prolonged slowdown … as we prepare and book for something worse than our baseline scenario,” CFO Jennifer Piepszak said on a media call. .
Dimon also said the bank would continue to pay dividends unless “the economic situation deteriorates materially and significantly.” However, the lender suspended share buybacks at least until the end of the third quarter.
RECORD OF LOAN LOSSES
The magnitude of expected loan losses from JPMorgan, the largest US bank in terms of assets and one of the largest in the world, is a major barometer of the health of the US economy, as the pandemic escalates unemployment and puts pressure on businesses.
The allowance for loan losses was a record for the bank and came on a day when Citigroup and Wells Fargo also set aside their largest allowances for credit losses since the 2008-09 financial crisis.
A new accounting rule requires banks to take provisions now so a borrower can default at any time during the deal, even if it’s months or years away.
The bank’s net income fell to $ 4.69 billion, or $ 1.38 per share, in the quarter ended June 30, ahead of analysts’ lowered estimates to $ 1.04 per share. Revenue rose 15% to $ 33.8 billion, also beating estimates.
The net interest margin fell to 1.99% from 2.37% in the first quarter. Trading revenues jumped to $ 11.3 billion.
Besides trading, the commercial banking and asset and wealth management units of the bank also recorded higher figures compared to the same period last year.