JPMorgan braces for loan losses as trading supports profits
(Reuters) – JPMorgan Chase & Co topped Wall Street earnings estimates in the second quarter due to increased trading income while setting aside a record $ 10.5 billion to cover future defaults , as the bank predicts the United States faces a more difficult path to economic recovery.
The loan loss provisions of the largest US lender reflect the damage caused by the coronavirus pandemic, but its performance in the markets bodes well for trading powers Goldman Sachs and Morgan Stanley, both of whom report later this week.
The bank suspended share buybacks at least until the end of the third quarter, but chief executive Jamie Dimon said its reserves were large enough to bear more losses while still being able to pay investors a dividend. .
“We can go through very, very difficult times easily and never cut the dividend,” Dimon said on a call with analysts.
JPMorgan shares rose about 2% as earnings and income beat consensus estimates, but $ 8.9 billion in reserve building painted a grim picture for quarters to come.
JPMorgan now expects double-digit unemployment in the United States through the first half of 2021, but it warned it might not have much visibility on the damage it faces.
“Compared to the first quarter, our reserve building now assumes a more prolonged slowdown … as we prepare and book something worse than our baseline scenario,” CFO Jennifer Piepszak told reporters on a call. .
The provisions were a record for the bank, and came as Citigroup and Wells Fargo also set aside the largest amounts since the 2008-2009 financial crisis, in part to account for changes that are forcing banks to take provisions now so a borrower can default at any time. point in the future.
Dimon warned that this was not a normal recession due to the high level of public funding supporting business and consumer finances. Telltale signs of a slowdown may not be visible for months, he said.
“You will see the effect of this recession. You just aren’t going to see it right away because of all the stimuli, ”he said.
The bank’s traders, often operating from home, had a huge quarter, with revenues up 77% as transaction volumes in financial markets hit record highs.
Bond trading alone generated $ 7.3 billion in revenue, with central banks buying billions of dollars in government securities as part of massive stimulus packages to deal with the pandemic.
While executives had indicated Wall Street trading desks would set records in the quarter, the jump was well beyond expectations.
“At first glance, our opinion is positive,” said UBS AG analyst Saul Martinez. “Capital levels have improved … reserve build-ups appear cautious and full-year forecasts for net interest income and expense have generally been maintained.”
Overall, the bank’s net income fell to $ 4.69 billion, or $ 1.38 per share, beating analysts’ lowered estimates of $ 1.04 per share. Revenue rose 15% to $ 33.8 billion, also beating estimates.
The net interest margin fell to 1.99% from 2.37% in the first quarter. Trading revenues jumped to $ 11.3 billion.
“We consider these results to be good read for other banks focused on capital markets, particularly Goldman,” Evercore ISI analyst Glenn Schorr wrote in a note on Tuesday.
Reporting by Anirban Sen in Bangalore and Elizabeth Dilts-Marshall and David Henry in New York; Editing by Lauren Tara LaCapra, Patrick Graham and Nick Zieminski