US banks’ prof­its up, but speed bumps may lie ahead

Weekend Argus (Saturday Edition) - - BUSINESS - Soyiso.maliti@inl.co.za

NEW YORK: Large US banks have been stand-outs in the early part of the sec­ond-quar­ter earn­ings sea­son, but an­a­lysts warn of speed bumps ahead.

Ma­jor banks have posted big profit in­creases that bested an­a­lyst ex­pec­ta­tions.

They gained from bet­ter credit qual­ity, the ab­sence of heavy pro­vi­sions that had marred prior quar­ters, and strong in­vest­ment bank­ing.

That said, loan growth re­mained anaemic, par­tic­u­larly to con­sumers, who con­tinue to skimp on spend­ing.

Banks also face tough ques- tions on the im­pli­ca­tions of higher in­ter­est rates and new pro­posed reg­u­la­tions to re­quire higher cap­i­tal buf­fers. And some an­a­lysts are scep­ti­cal the re­cent jump in prof­its is sus­tain­able.

JPMor­gan Chase chief ex­ec­u­tive Jamie Di­mon said loan growth re­mained “soft”, cit­ing the “cau­tious stance” by con­sumers and busi­nesses.

“How­ever, we con­tinue to see broad-based signs that the US econ­omy is im­prov­ing and we are hope­ful that, as jobs are added and the con­fi­dence builds, the US econ­omy will strengthen over time.”

JPMor­gan posted a 31 per­cent in­crease in prof­its to $6.5 bil­lion (R64.1bn) com­pared with the year- ago pe­riod, a re­sult fu­elled by a big jump in in­vest­ment bank­ing and im­proved credit qual­ity.

But the bank, the largest in the US by rev­enue, also pros­pered from the ab­sence of a $4.4bn charge in the year-ago pe­riod tied to its losses in the so-called “Lon­don whale” trad­ing de­ba­cle.

In fu­ture quar­ters, JPMor­gan and its peers will not ben­e­fit from cheery com­par­isons with a one-off event like the whale, said S& P Cap­i­tal IQ an­a­lyst Erik Oja.

Oja also sees lit­tle fur­ther op­por­tu­nity for cost-cut­ting.

“I don’t think it’s go­ing to be sus­tain­able,” Oja said of JPMor­gan’s ro­bust sec­ondquar­ter per­for­mance.

JPMor­gan was also among the most cau­tious about mort­gage bank­ing, warn­ing of a big po­ten­tial drop in mort­gage re­fi­nanc­ings if in­ter­est rates con­tin­ued to rise.

Mort­gage bank­ing was also a weak point for Bank of Amer­ica, which saw losses in con­sumer real es­tate deepen to $937 mil­lion from $744m.

But Bank of Amer­ica’s profit rise cheered the mar­ket, in part be­cause of deep cost cuts and the ab­sence of large charges that have plagued re­cent quar­ters.

Bank of Amer­ica, which suf­fered badly dur­ing the fi­nan­cial cri­sis, out­per­formed on com­mer­cial loans, which surged 20 per­cent to $380.5bn.

Cit­i­group, an­other bare-sur­vivor of the cri­sis, scored from big gains in eq­uity and fixed­in­come trad­ing, and solid rev­enues in emerg­ing mar­kets.

But Citi saw con­sumer loans tum­ble 7 per­cent to $382.2bn. Chief fi­nan­cial of­fi­cer John Gerspach said US con- sumers were still in a pe­riod of “delever­ag­ing” that might last at least a few more quar­ters.

In­vest­ment banks Gold­man Sachs and Mor­gan Stan­ley ben­e­fited from big gains in eq­uity and debt un­der­writ­ing.

Trad­ing of eq­ui­ties and other in­vest­ments was also strong, but Gold­man cau­tioned that re­sults in its fixed-in­come and some other di­vi­sions faded to­wards the end of the quar­ter as in­ter­est rates rose.

While higher in­ter­est rates pose chal­lenges, an­a­lysts note there is also an up­side, par­tic­u­larly in a strength­en­ing econ­omy. – Sapa-AFP

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