US banks re­port solid earn­ings as Di­mon blasts Wash­ing­ton

Muscat Daily - - BUSINESS -

New York, US - Credit cards were a strength and trad­ing rev­enues a weak­ness in the solid US bank earn­ings re­leased on Fri­day, as JPMor­gan Chase chief ex­ec­u­tive of­fi­cer Jamie Di­mon erupted in frus­tra­tion at po­lit­i­cal grid­lock in Wash­ing­ton.

JPMor­gan Chase, Wells Fargo and Cit­i­group all re­ported bet­terthan-ex­pected earn­ings, and bank ex­ec­u­tives de­scribed US eco­nomic growth as solid, if un­spec­tac­u­lar, as moves by the US Fed­eral Re­serve to lift in­ter­est rates have en­abled banks to charge more for loans.

Yet Fri­day’s del­uge of re­sults, the un­of­fi­cial start of the sec­ondquar­ter cor­po­rate earn­ings pe­riod, drew a lack­lus­tre re­ac­tion from Wall Street, with shares of all three banks fall­ing af­ter the re­ports.

At JPMor­gan, the big­gest US bank by as­sets, sec­ond quar­ter net in­come rose 13.4 per cent to US$7bn. Net rev­enues climbed 4.7 per cent to US$26.4bn.

Key fac­tors be­hind the earn­ings jump in­cluded higher net in­ter­est in­come due to the ris­ing in­ter­est rate en­vi­ron­ment, as well as higher over­all loans, of­ten seen as a proxy of eco­nomic ac­tiv­ity of firms and house­holds.

But JPMor­gan’s trad­ing di­vi­sions suf­fered com­pared with the year-ago pe­riod, with the bank cit­ing ‘sus­tained low volatil­ity’.

An­a­lysts also were dis­ap­pointed by a US$500mn cut to JPMor­gan’s 2017 pro­jec­tion for growth of net in­ter­est in­come to US$4bn, im­ply­ing it sees weaker loan growth in the sec­ond half of 2017, due in part to the Fed’s pol- icy of only rais­ing in­ter­est rates grad­u­ally.

“We’re look­ing at a slower rise in in­ter­est rates in gen­eral and that speaks to Fed funds rate pol­icy,” said CFRA an­a­lyst Ken Leon.

“I be­lieve you’re not go­ing to see sig­nif­i­cant con­tri­bu­tions of net in­ter­est in­come from ris­ing rates un­til 2018 and 2019.”

JPMor­gan’s Di­mon also made waves with a colour­ful tirade against Wash­ing­ton grid­lock that he blames for block­ing progress on tax re­form and other growth mea­sures needed to boost the econ­omy.

Di­mon, who is a mem­ber of Pres­i­dent Don­ald Trump’s busi­ness ad­vi­sory coun­cil, warned the US will have trou­ble ac­cel­er­at­ing growth from its cur­rent 1.5 to two per cent trend if it fails to come to­gether in favour of probusi­ness poli­cies.

“It’s al­most an em­bar­rass­ment to be an Amer­i­can ci­ti­zen trav­el­ling around the world and lis­ten­ing to the stupid things we have to deal with in this coun­try,” Di­mon told an­a­lysts on a con­fer­ence call.

“It’s not a Re­pub­li­can is­sue, it’s not a Demo­cratic is­sue and it doesn’t mat­ter who the pi­lot is.”

Di­mon’s re­marks come amid lag­ging progress on Pres­i­dent Trump’s eco­nomic agenda, with the out­look highly un­cer­tain for a Re­pub­li­can health care law that has been seen as im­por­tant to tax re­form.

Cit­i­group chief fi­nan­cial of­fi­cer John Gerspach ex­pressed cau­tious op­ti­mism about the out­look for pro-growth mea­sures from Wash­ing­ton.

“The hope is still there,” Gerspach said in a con­fer­ence call with re­porters. “Ob­vi­ously it’s taken a lit­tle bit longer than any­body would want.”

Cit­i­group’s net in­come came in at US$3.9bn, down 3.2 per cent from the year ago pe­riod, but bet­ter than an­a­lysts ex­pected. Rev­enues rose two per cent to US$17.9bn, with rev­enues from Citi-branded credit cards jump­ing ten per cent fol­low­ing a ven­ture with Costco Whole­sale.

Cit­i­group cited higher cost of credit and oper­at­ing ex­penses as fac­tors be­hind the drop in profit.

It also said its trad­ing rev­enues were dented by an un­favourable com­par­i­son with the year ago pe­riod, when Brexit-re­lated trad­ing boosted vol­umes.

Wells Fargo’s net in­come rose 4.5 per cent from the year-ago pe­riod to US$5.8bn. Rev­enues of US$22.2bn were es­sen­tially flat com­pared with the year ago pe­riod.

Net in­ter­est in­come rose, but over­all loans were es­sen­tially un­changed com­pared with the year-ago pe­riod. One fac­tor was a de­cline in auto loans due to tighter un­der­writ­ing stan­dards.

Jamie Di­mon

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