BANKS’ BATTLE SCARS
JPM, Wells bruised
The US economy is getting rocked by an unprecedented storm — and the nation’s biggest banks are building boats.
JPMorgan Chase’s secondquarter profits plunged by more than half as the megabank set aside a staggering $10.5 billion to absorb future loan losses related to the coronavirus pandemic. Separately, Wells Fargo said it swung to a $2.4 billion loss — its first since the 2008 financial crisis — as it set aside an additional $8.4 billion in anticipation of soured loans ahead.
JPMorgan’s net income of $4.7 billion was 51 percent lower than last year’s $9.7 billion, even though its net revenue surged by nearly $3.5 billion versus the second quarter of 2019.
Nevertheless, earnings per share came in at $1.38, which exceeded the analyst estimate of $1.04. That bright spot appeared driven by the bank’s trading performance, which saw a 79 percent jump thanks to the frothy markets, with fixed-income trading alone up 99 percent.
Shares of JPMorgan Chase rose 0.6 percent, to $98.21. Shares of Wells Fargo tumbled 4.5 percent, to $24.25.
JPMorgan boss Jamie Dimon struck a cautious tone Tuesday morning in announcing the results, which exposed the jarring disconnect on Wall Street of late, with markets booming despite persistent anxiety about the economy.
“Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,” Dimon wrote in a statement. “However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm.”
The nation’s largest lender set aside just over $1.1 billion in credit provisions in July 2019. But this year, Dimon and his team are clearly bracing for the worst amid soaring unemployment and an increasingly uncertain recovery from the coronavirus pandemic.
“This is not a normal recession,” Dimon told reporters on a conference call. “Consumer incomes are up, savings are up, and home prices — for the most part — are up. The recessionary part of this, you are going to see down the road.”
That view appears to be a shift from Dimon’s prediction in April, when he told media and analysts that JPMorgan foresaw a big bounce back in the second half of 2020.
Dimon also struck a wary tone on markets, telling reporters that he sees stocks coming back to earth: “Trading will revert to more normal numbers going forward. Markets will start to reflect [fallout from the pandemic].”
Dimon also commented on the madcap volatility in trading, musing, “We just saw the biggest downturn the world has ever seen … and then we saw the biggest upturn the world has ever seen.”
Meanwhile, Citigroup posted a 73 percent plunge in quarterly profit, as the bank set aside nearly $8 billion to brace itself for a potential surge in loan defaults.
Wells, the third-biggest US lender, posted its net loss of $2.4 billion on revenue of $17.8 billion — and it’s loss per share of 66 cents was much deeper than the 20 cents forecast by the Street. Wells also cut its dividend to 10 cents from 51 cents.
“We are extremely disappointed in both our secondquarter results and our intent to reduce our dividend,” Wells Fargo Chief Executive Charles Scharf said in a statement.