JPMorgan Chase & Co. rose the most in eight months in New York trading after earnings beat analysts’ estimates and revenue unexpectedly climbed on gains from underwriting stocks and bonds.
JPMorgan shares jumped as much as 4.1 percent after the New York-based bank reported its highest half-year profit ever, at almost $11 billion. Second-quarter net income increased 13 percent from a year earlier, to $5.43 billion, or $1.27 a share, six cents higher than the average estimate of analysts surveyed by Bloomberg.
Trading and investment-banking fees bolstered results as the retail bank labored under bad mortgages, low interest rates and litigation over loan-servicing and foreclosure practices. JPMorgan, led by Chief Executive Officer Jamie Dimon, was the first of the six-largest U.S. banks to report earnings, topping estimates for the 13th straight quarter, according to data compiled by Bloomberg.
“They’ve set a high bar for the rest of the industry in a very difficult environment,” Michael Holland, who oversees more than $4 billion in assets at New York-based Holland & Co., said in an interview with Bloomberg Radio. The firm’s $26.8 billion in revenue was “a blow-away number,” Holland said.
JPMorgan rose $1.17, or 3 percent, to $40.79 at 11:51 a.m. in New York Stock Exchange composite trading, after reaching $41.24 earlier today, the biggest gain since Nov. 4. The shares were down 6.6 percent this year through yesterday.
Second-quarter revenue jumped 7 percent, beating the highest estimate among 18 analysts surveyed, as fixed-income and equity markets revenue climbed to $5.5 billion from $4.6 billion a year earlier, a 20 percent gain. Revenue was projected to be $26 billion, according to the survey.
JPMorgan’s fixed-income and equity trading results beat the estimates of $5.29 billion from Chris Kotowski, an Oppenheimer & Co. analyst, and $4.95 billion from Keith Horowitz, a Citigroup Inc. analyst.
The bank was able to boost trading results by increasing leverage and making bets on safer securities, according to Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets in Arlington, Virginia.
Trading gains were “pretty broad-based,” Dimon said on a call with reporters.
The investment bank posted its second-best quarter for fee revenue out of the last 14 quarters and revenue outside the U.S. climbed 11 percent from the same quarter last year, Chief Financial Officer Doug Braunstein told reporters on the conference call.
The investment bank and trading desk are “carrying the bank right now, and the bank continues to struggle,” Miller said. “This was all driven by the broker-dealer side of the business.”
The bank’s outstanding loans and contracts in Portugal, Ireland, Italy, Greece and Spain total about $15 billion, which “bounces around by several billion,” after taxes and after taking into account hedges against that risk, Dimon said. In the worst-case scenario, the bank may lose about $3 billion, he said.
“We’ve not dramatically reduced those exposures,” Dimon said. “We’re still doing a lot of business in Europe. We hope the Europeans appreciate it.”
JPMorgan’s credit-card division, which lost money for all of 2009, generated $911 million in profit, or 17 percent of the bank’s net income for the quarter. The investment bank’s $2.06 billion of earnings accounted for 38 percent of the total.
Fewer consumers fell behind on their credit-card payments in the second quarter. Thirty-day delinquency rates dropped to 2.98 percent from 4.96 percent in the same quarter of 2010 and 3.57 percent in the first quarter of 2011. The rate of credit cards charged off as bad debt also fell, to 5.82 percent from 10.2 percent the prior year and 6.97 percent in the previous quarter.
“Within our wholesale credit portfolio, credit trends appear to have normalized,” Dimon said in a statement.
Provisions for credit losses dropped 46 percent to $1.81 billion from $3.36 billion as defaults and late payments declined. The bank released $1.2 billion of reserves held against future losses back into earnings.
“You continue to get reserve releases, which mean that your headline earnings-per-share numbers beat” estimates, Miller said. “Investors see that as poor quality and instead look at the underlying fundamentals, pretax pre-provision profits or your underlying revenue numbers.”
The retail bank, which includes mortgages, consumer bank accounts and small business lending, posted a $582 million profit, from a $1.04 billion gain a year before and a $208 million loss in the first quarter.
The division benefited from a $587 million reduction in provisions to $1.13 billion, JPMorgan said.
The bank added $1.27 billion to litigation reserves, mostly for mortgage-related issues, and took a $1 billion charge to clean up foreclosure matters, according to a slide show accompanying the earnings report. Repurchase losses were $223 million, JPMorgan said.
Dimon told reporters that the $1 billion charge covered some of the costs to settle charges by U.S. and state officials that the bank improperly foreclosed on borrowers.
“I would do anything to get it done today, but my counsel advises us that it could take a while,” Dimon said of negotiations with 50 state attorneys general and the Justice Department. “Delaying foreclosures is not a good thing for the economy.”
The reserves don’t cover liabilities from loans made by Washington Mutual, the lender JPMorgan acquired during the financial crisis. JPMorgan said those liabilities are the responsibility of the Federal Deposit Insurance Corp., adding that the “FDIC has contested this position.”
The outstanding balance of loans related to Washington Mutual was approximately $70 billion as of March 31, with about $24 billion overdue by 60 days or more, according to the company’s first-quarter regulatory filings.
JPMorgan and other large banks, which have benefited from record low costs of funding mortgages and other assets, face a squeeze on net interest margins -- the difference between what they pay to borrow money and what they get for loans and on securities.
The net yield on interest-earning assets -- what the bank collects on interest on loans and securities minus what it pays out on deposits and other borrowings -- fell to 2.72 percent in the second quarter, from 2.89 percent in the first quarter and 3.01 percent a year earlier.
Citigroup, the third-biggest U.S. lender behind JPMorgan and Bank of America Corp., may report a second-quarter profit of $2.95 billion when it releases results on July 15, the survey of analysts shows. Charlotte, North Carolina-based Bank of America may report a profit of $3.08 billion excluding mortgage-related costs on July 19. San Francisco-based Wells Fargo & Co. may say it earned $3.75 billion when it announces results the same day.
Capital One Financial Corp., this year’s best-performing major U.S. bank stock, said yesterday that net income rose 50 percent to $911 million as it set aside fewer provisions for loan losses.