JPMORGAN RESULTS DEFY FORECASTS
Upbeat US bank opens reporting season; ‘Strong’ quarter sees higher earnings.
JPMorgan Chase opened the big US banks’ quarterly reporting season with better than expected results despite stubbornly low interest rates and a drop in deal activity in the run-up to Brexit. The bank’s earnings per share of $1.55 - significantly ahead of estimates of $1.42 - came after analysts had slashed their forecasts for the entire sector, fearing that growth in consumer portfolios would fail to offset choppiness in trading and investment banking, and a build-up of reserves for bad loans. In the end, JPMorgan, the biggest US bank by assets, said that net revenues were 2 per cent higher than a year ago, at $24.38bn. Net income was fractionally lower, at $6.2bn from $6.29bn, as provisions for credit losses rose 50 per cent to $1.4bn. But earnings per share of $1.55, on a diluted basis, were a penny higher than a year ago - helped by a $430m release of reserves for litigation. Marianne Lake, chief financial officer, described the quarter as “strong”, citing year-on-year loan growth of 16 per cent and a consumer business, in particular, which was “firing on all cylinders”. The bank left its guidance for the full year unchanged, despite fresh market turmoil unleashed by the result of the UK’s referendum on EU membership. As the first of the big US banks to produce quarterly results, JPMorgan serves as a bellwether. Analysts expect year-on-year falls in earnings-per-share from four of the big five banks still to report, with only Goldman Sachs - which took a big charge for litigation a year earlier - expected to buck the trend with a rise. But Ken Usdin, analyst at Jefferies, noted “solid bounces” in revenues from JPMorgan’s investment banking division, even as clients sat on their hands ahead of the EU referendum at the end of last month. Second-quarter fees from M&A and capital raising were down 10 per cent from a year earlier, but up 23 per cent from a very grim first quarter. Fees from debt trading, meanwhile, rose 35 per cent from a year earlier, with equities up 2 per cent. Analysts were encouraged by credit quality, too, with Chris Kotowski at Oppenheimer noting very low net charge-offs across all segments of the bank. Like most of the big lenders, JPMorgan has begun to build loan-loss reserves following years of reserve releases since 2010. In the second quarter it added a net $50m, prompted by a downgrade of one big - unnamed client in the oil sector. JPMorgan’s net interest margin - the gap between the yield on its assets and the cost of its funds - slipped by five basis points to 2.25 per cent, lower than analysts’ forecasts of 2.29 per cent.