Daily Management Review

JP Morgan Reports Large Q2 Profit As American Economy Recovers


JP Morgan Reports Large Q2 Profit As American Economy Recovers
With the continued recovery of the United States economy, a 155 per cent jump in second-quarter profits was reported by US bank JPMorgan Chase & Co.
However, low interest rates, weak demand for loans and a slowdown in trading will prevent the company from potentially amassing large revenues in the short term, cautioned executives of the bank.
There was a 2.5 per cent fall in the stocks of the company despite the huge surge in profits as investors were more concerned about the emerging challenges for financial stocks. Questions about competition to the bank from digital upstarts were raised by analysts, forcing Chief Executive Jamie Dimon to exclaim at one point: "My God, the company is doing quite fine." read more
A growth in deal-making and the releasing of a $3 billion coffer that the bank had set aside to cover for anticipated pandemic losses boosted the performance during the quarter of the largest US bank – also viewed as a bellwether of the American economy. These factors comfortably offset a drop of 28 per cent year on year ion trading revenues.
Signals of a rebound in consumer spending were available in the results of JP Morgan, propelled by Americans getting back to work because of a successful national vaccination campaign.
There was a 22 per cent surge during the quarter in combined spending in debt and credit card compared to the second quarter of 2019 when consumer spending was normal. In June, there was a 13 per cent growth compared to the same month in 2019 in travel and entertainment card spending.
"We have bright spots in certain pockets and the consumer spend trends are encouraging," Chief Financial Officer Jeremy Barnum said on a call.
However, core lending revenues may not be beneficial for the bank this year from the recovery of the American economy because of the availability of cash with corporate clients and consumers primarily because of the extraordinary economic stimulus and low interest rates, Barnum cautioned.
There was an 8 per cent drop in net interest income for JPMorgan's consumer and community banking unit while a 3 per cent drop in average loans were reported by the evening. There was also a 7 per cent drop in overall revenues of the company to $31.4 billion even though profits reached $11.9 billion.
"Rates and loan growth continue to be headwinds," Evercore ISI analyst Glenn Schorr wrote. However, he also noted that a 9 per cent growth in client investment activity and rise in card spending were "clear signs that the economy continues to improve."
JPMorgan reported a 19 per cent decline in its corporate and investment banking revenues primarily because of a 44 per cent drop in bond trading compared to the high trading in the same quarter last year. at that time, the bank had cautioned that trading would be unstable.
Questions about the bank’s strategy to compete with digital upstarts at home and abroad were raised by analysts on a call with Dimon.
"Our bankers, our traders, our credit card, our debit card, our merchant services, our auto business, our digital, it's doing pretty good," Dimon responded, acknowledging however that competition from tech-savvy players was "going to be very tough."