JPMorgan’s profit plunges as credit costs spike on economic uncertainty

JPMorgan reported second-quarter profits of $4.7 billion, down from $9.7 billion a year ago. Yet per-share earnings only fell to $1.38, easily beating Wall Street’s expectations. Revenue jumped 15%, topping estimates.

Jamie Dimon, JPMorgan’s CEO, struck a cautious note about the road ahead.

“Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,” 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.

JPMorgan said provisions for credit losses totaled $10.5 billion during the quarter, up from just $1.2 billion the year before. Most of that was caused by reserve builds of $8.9 billion as the bank braces for loans to go bust in the coming months. This marks an acceleration from the first quarter, when JPMorgan reported credit costs of $8.3 billion, including reserve builds of $6.8 billion.

JPMorgan said the surging reserve builds during the second quarter “reflect further deterioration and increased uncertainty in the macro economic outlook as a result of the impact of Covid-19.”

JPMorgan shares rallied 4% on the results. The shares have lost nearly one-third of their value this year.

JPMorgan reported firmwide average loans of $998 billion, up 4% from the year before. Deposits spiked 25% to $1.9 trillion.

Consumer division suffers a loss

Analysts have warned the results from banks will be “really ugly” because the industry is being slammed by a perfect storm of problems during the pandemic. Lenders are grappling with mass unemployment, surging bankruptcies and the uncertain health crisis. Plus, bank profits are shrinking because of extremely low interest rates.

Later this week, rivals Bank of America (BAC), Citigroup (C), Morgan Stanley (MS) and Goldman Sachs (GS)are all scheduled to report results. Wells Fargo (WFC)is expected to suffer its first quarterly loss and first dividend cut since the Great Recession.
JPMorgan’s consumer banking division swung to a loss of $176 million, compared with a strong profit of $4.2 billion the year before. The red ink was driven by shrinking revenue and a jump in provisions for credit losses, largely around the bank’s credit card business.

Actual credit losses were minimal, however. JPMorgan reported $1.3 billion in net charge-offs, flat from a year ago.

Market boom pads JPMorgan’s bottom line

Although Main Street is struggling, Wall Street is enjoying a rapid recovery from the crisis. US companies raised a record $190 billion via stock sales during the second quarter, according to Dealogic. That surge of stock sales, highlighted by the IPOs of software firm ZoomInfo and grocery chain Albertsons, has led to a fee boom for investment banks.

Profits spiked by 85% in JPMorgan’s corporate and investment bank, which reported record revenue of $16.4 billion. Investment banking fees soared 54% amid the flurry of deals.

JPMorgan’s trading business was another bright spot. Markets and securities revenue surged 77%, led by a 99% spike in the fixed income arm. JPMorgan cited widespread strength, especially in interest rates, currencies, credit and emerging markets.

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