JPMorgan Profit Beats Analysts’ Estimates as Expenses Drop

Updated on
JPMorgan Earns $1.54/Share in 2Q Beating Estimates

JPMorgan Chase & Co., the biggest U.S. bank by assets, said second-quarter profit climbed 5.2 percent as the firm cut costs to compensate for falling revenue in two of its largest businesses.

Net income advanced to $6.29 billion, or $1.54 a share, from $5.98 billion, or $1.46, a year earlier, according to a statement Tuesday from New York-based JPMorgan. Twenty-nine analysts surveyed by Bloomberg estimated $1.45 a share.

Wall Street has turned to cost-cutting measures after trading revenue declined in four of the past five years. JPMorgan, the first U.S. bank to report results, said in May it would eliminate thousands of jobs and send back-office workers to cheaper locations to save money.

“We’re starting to see the efficiency gains come through,” Jeff Harte, an analyst at Sandler O’Neill & Partners LP, said in a phone interview before results were released. “Big banks have scale that we really haven’t seen the advantage of because of litigation and regulatory expense.”

Noninterest expenses fell 6 percent to $14.5 billion, while revenue declined 3.2 percent to $24.5 billion. JPMorgan shares rose 0.8 percent to $68.65 at 7:45 a.m. in New York.

Earnings at the corporate and investment bank, run by Daniel Pinto, climbed 9.9 percent to $2.34 billion on a 15 percent drop in expenses to $5.14 billion. Revenue slipped 5.8 percent from a year earlier to $8.72 billion amid sluggish fixed-income trading.

Fixed Income

Excluding the impact of year-ago business sales, fixed-income trading revenue fell 10 percent, which the company attributed to weakness in credit and securitized products, currencies and emerging markets, offset by strength in rates.

The firm posted $2.93 billion in fixed-income trading revenue, falling short of the $3.36 billion estimate from Wells Fargo & Co.’s Matthew Burnell and $3.45 billion from Harte.

“Trading conditions became more challenging in June,” Jason Goldberg, an analyst at Barclays Plc, said in a July 10 research note. Fixed-income trading that month was “choppy and uneven among spread-widening, increased risk aversion, and reduced activity owing to actions in Greece and China.”

Net income from consumer and community banking, run by Gordon Smith, rose 1.5 percent to $2.53 billion as provisions for credit losses declined 18 percent to $702 million. Revenue was $11 billion, down 4.4 percent from a year earlier.

Mortgage revenue dropped 21 percent to $1.8 billion in the quarter on lower servicing revenue.

Asset Management

Profit in asset management, run by Mary Erdoes, slid 21 percent to $451 million, which the company attributed to higher legal costs and a loss on a held-for-sale asset. Assets under management climbed 4 percent to $1.8 trillion amid greater inflows and rising equity markets.

Commercial banking, the unit run by Doug Petno, posted a 22 percent profit decline to $525 million.

JPMorgan agreed in May to plead guilty to a felony charge for conspiring to manipulate currencies, paying almost $900 million in fines to U.S. authorities. The bank, which had already set aside reserves for the costs, said the blame was “principally attributable” to a trader who had left the company. The world’s largest foreign-exchange dealers had been accused of colluding to influence benchmark rates.

The bank said this month it was replacing its top lawyer, Steve Cutler, after almost nine years. Stacey Friedman, currently general counsel of the corporate and investment bank, will take over early next year for Cutler, who presided over more than $36 billion in costs to resolve disputes stemming from the financial crisis.

Compensation Costs

JPMorgan’s board said in May it will weigh changes to executive pay after record low support for the firm’s most recent compensation packages. Proxy advisers had recommended investors vote against the pay resolution, saying the bank lacked preset goals and didn’t give a good reason for awarding Chief Executive Officer Jamie Dimon his first cash bonus in three years.

a

Play Episode

Before it's here, it's on the Bloomberg Terminal. LEARN MORE