JPMorgan Q2 Beats Expectations Despite Surge in Provisions

Investing.com - JPMorgan (NYSE:JPM) said its net profit fell by nearly half in the second quarter, due to a mammoth $10.8 billion charge for provisions against bad loans that was partially offset by a surge in revenue at its bond and equities trading operations.

Revenue and earnings per share both exceeded analysts’ forecasts however, prompting the stock to rise 4.3% in its initial response in premarket trading. It subsequently pared gains to be up 2.1% by 8:15 AM ET (1215 GMT).

"“Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy," CEO Jamie Dimon said in a statement. "However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm."

Net profit fell to $4.69 billion, or $1.38 a share, from $9.56 billion in the second quarter of last year. But that was still better than a consensus forecast of $1.13 a share. Revenue, meanwhile, came in at $33.82 billion, up 17% from a year earlier and more than 10% above expectations.

The U.S.'s largest bank said it had built reserves of $4.6 billion on its wholesale loans, and $4.4 billion on its consumer loans, mostly in respect of credit card debt. That reflects the surge in corporate bankruptcies and individual unemployment that followed the extreme lockdown measures imposed across the U.S. in the quarter - a pattern that's likely to be reflected in all the earnings reports of the nation's banks in the next couple of weeks.

The charge against consumer loans pushed JPMorgan's main street operations to a loss of $176 million in the quarter, with net revenue falling 26% as the Federal Reserve's lower interest rates compressed deposit margins.

The results were, however, rescued by a strong performance from the markets division, where revenue rose 77% from a year earlier. Investment banking revenue also grew 46%, allowing the corporate and investment bank as a whole to post a 33% rise in revenue and $5.46 billion of profit.

The same pattern was evident in the results of Citigroup (NYSE:C), which also reported on Tuesday morning. Citi's earnings per share fell 74% to 50c, but that was better than the 36c expected largely because the bank's bond-trading desk delivered a 68% rise in revenue on the year, as its clients fled for the safety of fixed-income assets.

The safety net provided by markets and investment banking was conspicuously missing from Wells Fargo 's update, released some minutes after JPMorgan's. The California-based bank swung to a net loss of $2.4 billion after building $8.4 billion in provisions against bad loans. It also wrote off another $1.1 billion in bad loans, bringing the total charge to $9.6 billion.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Wells Fargo (NYSE:WFC) also said it will cut its dividend by some 80% to 10c a share, a couple of weeks after the Federal Reserve moved to tighten bank payouts to ensure that their balance sheets stay strong enough to withstand the wave of personal and corporate insolvencies that the pandemic has started.

Citigroup's total provisions and credit losses rose to $7.81 billion. That brought the total provisions against potential and actual loan losses announced by three banks Monday to some $27.8 billion.

Wells Fargo stock was down 3.8% in premarket trading by 8:15 AM ET, while Citigroup's was up 1.6%.

Stay up-to-date on all of the upcoming earnings reports by visiting Investing.com's earnings calendar