JPMorgan’s record trading helps ease pandemic’s toll

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JPMorgan Chase’s results were one more marker of the disconnect between ebullient markets and concern about the U.S. economy.

The biggest U.S. bank said second-quarter profit fell 51% to $4.69 billion, 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 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.

Fixed-income traders generated $7.3 billion, a figure that by itself would have set a record for overall trading even if the equities group produced nothing.

“We are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm,” Chief Executive Officer Jamie Dimon said in a statement. “This is why we can continue to serve all of 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 U.S. lenders report this week. The four biggest U.S. 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.

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“Overall there were not many positive data points to hang your hat on,” according to analysts. Advisor headcount, net interest income and assets were down.

The bank generated $9.72 billion from trading stocks and bonds, 79% more than a year earlier and a bigger jump than analysts were expecting. That and a 91% gain in investment-banking fees helped the company easily remain profitable even as it set aside $10.5 billion to cover future bad loans, a record that was also higher than estimates.

JPMorgan, which dropped 30% this year through Monday, rose 2.5% in early trading at 7:29 a.m. in New York.

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 $1.56 billion in the second quarter. But that was far less than the $2.78 billion predicted by analysts.

Loan defaults could start to surge in the second half of the year as the effect of the government’s stimulus measures and the bank’s loan-deferral programs start to wear off.

Revenue rose across all of the bank’s business lines except the consumer unit, where it fell 9% from a year earlier to $12.2 billion. The business reported a loss of $176 million amid higher credit costs and a drop in loans. The loss for the unit, which has historically been the bank’s most profitable business, was its first since at least 2011, which was before the bank combined its retail and credit-card groups.

Net interest income slipped 4% to $13.9 billion in the second quarter as the impact of lower interest rates offset a 2% increase in the bank’s total loan book compared with last year. The bank on Tuesday also kept in place its outlook for full-year lending income after raising it two months ago to $56 billion.

Bloomberg News
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