JPMorgan Profit Drops 51% as Bank Sets Aside Billions -- 4th Update
July 14 2020 - 4:39PM
Dow Jones News
By David Benoit
JPMorgan Chase & Co. set aside $10.47 billion to cover
potential losses on loans to borrowers hurt by the coronavirus
pandemic, cutting its second-quarter profit in half.
The nation's biggest bank by assets is stockpiling reserves,
worried about how the pandemic will affect the financial health of
its consumer and corporate clients. JPMorgan put aside more than $8
billion for potential loan losses in the first quarter, which ended
just weeks into the crisis.
The New York bank posted a profit of $4.69 billion, down from
$9.65 billion a year earlier. At $1.38 a share, the results
exceeded the average analyst estimate of $1.15 a share, according
to FactSet. Per-share earnings were $2.82 a year ago.
Revenue rose 15% to $33 billion.
The pandemic also took a toll on two other big U.S. lenders.
Wells Fargo & Co. posted its first quarterly loss in more than
a decade and socked away $9.57 billion to prepare for a wave of
loan defaults. Citigroup Inc.'s second-quarter profit fell 73%,
weighed down by the $7.9 billion the bank set aside for an expected
increase in soured loans.
JPMorgan's outlook for the economy has darkened since the bank
reported first-quarter earnings, and its increased loan-loss
provisions reflect that view. The bank put aside extra to prepare
for unemployment to remain above 10% through the first half of next
year, said Chief Financial Officer Jennifer Piepszak.
JPMorgan Chief Executive James Dimon said a massive
government-stimulus effort and expanded unemployment benefits are
keeping U.S. consumers and businesses afloat for now, but they
won't last forever.
"This is not a normal recession," Mr. Dimon said. "The
recessionary part of this you're going to see down the road."
JPMorgan's second-quarter loan-loss provision included $1.56
billion in net charge-offs and $8.9 billion it added to its
reserves for loans that might default in the future. Analysts had
expected the total to be $8.37 billion.
The bank's models predict a wave of defaults over the coming
year, especially if the virus cripples the economy for longer than
expected.
The biggest portion of the quarter's provision -- $5.83 billion
-- came from the consumer bank, while $2 billion came from the
corporate and investment bank and another $2.43 billion came from
the commercial bank.
The provisions boosted the bank's total allowance for potential
credit losses to $34.3 billion as of the end of June.
JPMorgan's shares have fallen 30% this year, slightly better
than its big-bank rivals but far worse than the overall market.
Banks have been hammered on fears that their profits will be eaten
by loan losses and that margins will be dragged down if interest
rates stay low for the foreseeable future.
In premarket trading, shares rose 2.4% to $100.
The bank's net interest margin, the difference between what it
charges borrowers and pays depositors, fell to 1.99% from 2.37% in
the first quarter.
In a bright spot, JPMorgan's corporate and investment bank
posted a 66% surge in revenue, with its trading division up 79%.
The bank's fixed-income trading unit recorded $7.34 billion in
revenue, double from a year ago, and equities trading posted $2.38
billion in revenue, up 38%. Investment-banking revenue also nearly
doubled to $3.4 billion, including gains on some positions.
The results were boosted by a volatile stock market and
investors seeking yield, as well as companies of all sizes raising
funds from stock and bond offerings.
In the consumer and small-business banking operations, revenue
fell 9% and the provisions it set aside for loan losses sent it to
a $176 million loss. Spending volume on the bank's credit cards
fell 23%.
It was the first time the consumer business recorded a loss
since the first quarter of 2011, capping years of soaring
growth.
The commercial bank slid to a $691 million loss for the quarter.
In asset and wealth management, profit fell 8% to $658 million on
flat revenue.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
July 14, 2020 17:24 ET (21:24 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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