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The banking industry hopes to lean on its investment banking and cost-cutting efforts in an otherwise ugly second quarter.
The S&P 500 and Dow indexes edged higher in volatile trading on Tuesday as investors digested a mixed bag of quarterly earnings reports from U.S. lenders but technology stocks fell on worries over new business restrictions in California. Citigroup Inc was also down 2.5% as it reported a steep fall in quarterly profit. The S&P 500 banks index slumped 1.6% as the three banks set aside a combined $28 billion to cover potential losses on loans to borrowers hurt by the coronavirus pandemic.
Big swings in stock and bond markets since March have helped big Wall Street banks weather the coronavirus downturn better than they otherwise might have, but their trading-revenue gains are unlikely to last. On Tuesday, JPMorgan Chase & Co <JPM.N> and Citigroup Inc <C.N> reported upticks of 77% and 48% in quarterly markets revenue, respectively - far better than what many analysts had predicted. It was the second consecutive period of major trading increases, as investors reacted to a changing portrait of how severe the pandemic might be, as well as government stimulus programs to prop up economies and markets.
(Bloomberg) -- Shares of JPMorgan Chase & Co. were little changed, Citigroup Inc. slipped and Wells Fargo & Co. sank as analysts assessed the banks’ better-than-expected second-quarter capital markets results and cautious views as the coronavirus pandemic rippled through the global economy.Chief executives at all three lenders warned that outlooks had deteriorated since last quarter, while Wells Fargo slashed its dividend more than analysts anticipated.JPMorgan spoke of a protracted downturn and said government stimulus was making it harder to gauge the economic damage from the pandemic, with Chief Executive Officer Jamie Dimon saying, “this is not a normal recession.” Dimon also predicted trading results would eventually revert to historic norms.JPMorgan erased most of a 2.4% gain Tuesday in New York after fixed-income, currencies and commodities sales (FICC) and trading revenue of $7.34 billion topped an average estimate of $5.74 billion. Record markets revenue, up 79%, and investment banking fees, up 54%, “more than offset interest-rate headwinds and reduced consumer activity,” Dimon said in the bank’s statement. He also expressed confidence in the bank’s current dividend.Citigroup fell as much as 3%. The bank’s FICC sales and trading revenue of $5.6 billion exceeded the average projection of $4.59 billion, echoing JPMorgan’s earlier beat, though not by as much. Cost of credit of $7.9 billion reflected an allowance for credit loss builds due to a “deterioration in Citi’s macroeconomic outlook since the end of the first quarter,” along with corporate loan downgrades, the bank said in a statement. The added reserves also included a “qualitative management adjustment” for more “stress and/or a somewhat slower economic recovery.”Wells Fargo tumbled as much as 8.2%, to the lowest since May 15, after reporting its first quarterly loss since 2008 and cutting its dividend by more than analysts had expected, to 10 cents a share. Wells’ second-quarter net loss of $2.4 billion included an $8.4 billion increase in its credit loss reserve, driven by “current and forecasted economic conditions.”“We are extremely disappointed in both our second-quarter results and our intent to reduce our dividend,” CEO Charlie Scharf said in the bank’s statement. “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.”The KBW Bank Index, which shed as much as 2.7% Tuesday, has now tumbled 36% so far this year amid pandemic-fueled economic woes and low interest rates, underperforming the S&P 500, which has fallen 2%.Here’s a sample of the latest analyst commentary:Bloomberg Intelligence, Alison WilliamsResults were “as expected but magnified, with JPMorgan and Citi’s strong trading helping to fuel bigger loss provisions, which provides a cushion for the second half,” Williams said. “Wells Fargo’s substantially larger build did not share the same offset,” she added.Wells Fargo’s dividend cut to the “low end of bearish expectations should remove uncertainty around potential future reductions, while potentially helping to improve its case as a conservative risk manager, as it aims to remove Fed constraints.”Vital Knowledge, Adam CrisafulliJPMorgan’s “blow-out investment banking performance,” with FICC revenue up 120% from the prior year, was offset by a “huge provision number and ongoing reserve builds,” Crisafulli wrote.The tone on JPMorgan’s conference call was “neutral-to-positive for the stock in that reserve builds might have peaked,” he said. At the same time, a remark about flattening consumer sales growth across the country was a “negative macro indication.”Wolfe Research, Steven Chubak“JPMorgan took advantage of their strong trading gains by plowing a significant portion back into credit reserves, positioning the firm well for future quarters, while also building substantial capital,” Chubak wrote. While the trading momentum may not be sustainable, investors will probably “react favorably” to the strong beat and reaffirmation of net interest income and expense guidance.UBS, Saul MartinezCitigroup’s earnings-per-share was roughly in line with UBS’s estimate, as “loan loss provisions were materially higher than expected on elevated reserve builds, but sales and trading income beat our forecasts,” Martinez wrote. The result’s “most noteworthy” areas were: $5.6 billion of loan loss reserves; sales and trading and investment banking that boosted revenue; controlled expenses and a 12% year-over-year decline in Asia and Latam consumer banking revenue.“Overall, operating trends seem mixed to us, with considerable revenue pressure in consumer businesses, but expense discipline and strong results in markets oriented businesses.”Credit Suisse, Susan Roth KatzkeWells Fargo‘s earnings-per-share miss came from lower-than-expected revenue and higher-than-anticipated expenses and provision, Katzke wrote. “The question is how close this quarter gets to a bottom in earnings; it’s hard to surmise in an uncertain macro environment.”KBW, Sanjay SakhraniCredit card volume trends at JPMorgan, Wells Fargo and Citigroup were consistent with expectations, with “some greenshoots if one looked at intra-quarter trends,” Sakhrani wrote.“While T&E and restaurant volumes remain extremely weak, there has been notable improvement,” with volumes down about 50% exiting June versus a drop of 80% to 90% in early April, he said. Sakhrani will watch US Bancorp results Wednesday for “greater color” around corporate volumes, which may offer insight into what to expect from American Express.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
The dollar fell in North American trade on Tuesday as the euro rose on optimism about the possibility of a European Union stimulus package and as U.S. stocks gained. The U.S. dollar index, which measures the safe-haven greenback against a basket of six rival currencies, was down 0.31% to 96.265. The weaker dollar was partly attributable to a move higher in the euro on hopes the European Union will agree on a rescue financing package that will limit the economic damage to the bloc from the coronavirus pandemic.
(Bloomberg) -- Crude futures in New York rose in tandem with a broader recovery in equities markets, as initial signs that OPEC members intend to comply with promised oil-production cuts assuaged fears that a resurgence in coronavirus cases would send demand back to the worst days of the pandemic.Futures rose 0.9% in New York after earlier falling as much as 2.6%. The dollar slipped as JPMorgan Chase & Co. reported record trading revenue, helping to support risk sentiment. Saudi Arabia commended Iraq for implementing almost all its pledged oil-production cuts and Nigeria told the kingdom it was committed to hitting its target, in further signs that disputes among OPEC+ members over cheating of quotas are being resolved.“It’s all about risk appetite and the hope of continued demand growth here,” said Bart Melek, global head of commodity strategy at TD Securities. Iraq and Nigeria pledging to “to live up to their supply cut commitments made investors comfortable to take a long stance on oil.”Earlier, prices had fallen amid growing outbreaks of coronavirus, signaling red flags for oil demand, keeping a lid on gains. California, one of the largest gasoline-consuming states in America, said Monday that it would pull back on reopening efforts.In the longer-term, OPEC expects demand for its crude to rebound next year, surpassing levels seen before the pandemic, as rival producers struggle to revive output. An OPEC+ committee meets Wednesday to discuss easing record supply curbs that have helped the market recover. OPEC+ is expected to stick with plans to taper the cuts from August even as the virus rages in many parts of the world.The OPEC+ committee will consider whether the alliance should keep 9.6 million barrels of daily output off the market for another month, or taper the cutback to 7.7 million barrels as originally planned. Members are leaning toward the latter option, according to several national delegates who asked not to be identified.Meanwhile, data showed the extent of China’s binge on cheap crude earlier in the year. The world’s top importer bought a record 13 million barrels a day for June arrival, according to customs data, as a long line of vessels carrying cheap oil bought months ago wait to offload shipments.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
J.P. Morgan Chase & Co. said it the post-earnings conference call with Wall Street analysts that it is now building credit reserves in expectations of protracted downturn as a result of the COVID-19 pandemic, a change from its previous build in reaction to a sharp but short downturn. In the second quarter, the bank booked a reserve build of $8.9 billion, with about $4.4 billion for its consumer business and about $4.6 billion from its wholesale business. That compares with a reserve build of $6.8 billion in the first quarter, which included $4.4 billion for its consumer business and $2.4 billion for its wholesale business. "[I]'d say in the first quarter, when we were really looking at a deep but short-lived downturn, we were really very much focused on most-impacted sectors, and now that we're looking at a more protracted downturn, we're reserved for a much more broad-based impact across sectors," said Chief Financial Officer Jennifer Piepszak, according to a FactSet transcript of the call. The stock edged up 0.1% in midday trading, paring earlier gains of as much as 2.4% in wake of better-than-expected second-quarter earnings. The stock is now up 2.4% over the past three months, while the Dow Jones Industrial Average has advanced 9.9%.
JPMorgan earnings beat views, while Citigroup reported mixed results and Wells Fargo missed badly and slashed its dividend.
JPMorgan Chase (JPM) reported better-than-expected earnings for Q2 2020. Strong trading revenue helped offset its low net interest margin.
Borrowers have been propped up by trillions of dollars in government and bank assistance, cheap credit and loan forbearance programs, but some of that support is going away, and banks said they fear losses will spike. "The consumers' incomes are up, savings are up and home prices up," said JPMorgan Chase & Co CEO Jamie Dimon said on a call with journalists. JPMorgan and Citigroup Inc each reported huge second-quarter profit declines on Tuesday, while Wells Fargo & Co posted its first loss since 2008.
Improvement in trading, investment banking and mortgage banking income supports JPMorgan's (JPM) Q2 earnings, while higher reserve build to combat coronavirus-related uncertainty and low rates hurt.
"The consumers' incomes are up, savings are up and home prices up," said JPMorgan Chase & Co CEO Jamie Dimon said on a call with journalists. JPMorgan and Citigroup Inc each reported huge second-quarter profit declines on Tuesday, while Wells Fargo & Co posted its first loss since 2008. Banks with big Wall Street businesses were able to offset their loan woes with huge gains in capital markets revenue, particularly trading.
Key Takeaways: * Earnings week kicks off with JP Morgan Chase, Wells Fargo, and Citigroup reporting * Concerns about an increase in coronavirus cases keep investors on shaky ground * Market uncertainty still looms but broader markets above key support levels(Tuesday Market Open) After weeks of anticipation, we finally have a full set of major earnings reports to sink our teeth into.Tuesday began with a better than expected outcome from JP Morgan Chase (NYSE: JPM), helping set a positive tone early in the day. While all the big banks can help drive the market with their results, JPM is the one whose business arguably touches every base. And its CEO, Jamie Dimon, is widely looked to as a key voice on the economy.JPM beat Wall Street analysts' estimates on the top- and bottom lines despite overall earnings falling sharply from a year ago. Heavy trading volume in Q2 made a big difference for JPM and could also set the tone for earnings from trading stalwarts Goldman Sachs Group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS) later this week.Bank Earnings, Round 1: JPM, WFC, C Trading surged 79% for JPM in Q2, with the bond and equities sides both looking robust and exceeding Wall Street's expectations. Overall, JPM reported earnings of $1.38 a share vs. the average analyst estimate of $1.19 on revenue of $33 billion vs. the $30.3 billion expected. The company added more credit reserves to protect against possible loan issues, a move that hurt profits. Higher revenue, however, helped JPM protect its bottom line to some extent.It wouldn't be a huge surprise if this kind of outcome ends up being the theme for bank earnings in Q2. Heavy trading and investment banking activity could propel these companies even as they struggle with a tough net interest margin environment, the need to hold massive credit reserves, and slackening business from struggling consumers.The other theme could be lower earnings. There's no painting over the fact that JPM's $1.38 earnings per share may have beaten expectations, but was down from $2.82 a year earlier. Still, JPM shares were up 1.6% in pre-market trading.Dimon, quoted in JPM's earnings release, painted about as good a picture as he could. He said despite some recent positive data and government action, there's "much uncertainty" about the future path of the economy. He added that JPM's record Markets revenue and a 54% rise in Investment Banking fees helped offset interest rate headwinds and reduced consumer activity. Rates are working against JPM and other banks.Things weren't so hot down the street at Wells Fargo & Co (NYSE: WFC), which reported a Q2 loss of 66 cents a share. That was worse than the 20-cent loss that analysts had forecast. Revenue of $17.8 billion was also weaker than analyst expectations. The company said it's cutting its dividend to 10 cents a share. WFC shares fell more than 3% ahead of the opening bell. WFC continues to struggle more than the other huge banks.It was WFC's first quarterly loss in a decade, with a lot of bad stuff all around. They've had issues for a long time, but hopefully, they're dealing with it.Around the corner, at Citigroup Inc (NYSE: C) the picture looked a little sunnier. C has been one of the better bank performers in the stock market lately, and the stock climbed another 1.5% in pre-market trading today but then fell 1% after strong trading results helped the company beat analysts' estimates. However, profit fell substantially to 50 cents a share from $1.95 a year earlier. Revenue of $19.77 billion came in ahead of analysts' expectations as trading revenue rose sharply.C set aside money for protection against possible bad loans and saw consumer banking struggle.If you can look past the fact that earnings per share for the big banks fell sharply year over year (something Wall Street had expected), it doesn't look like a horrible day for the sector, but it wasn't a great one, either.One possibility as today's session moves along is that the Dow Jones Industrial Average ($DJI) could get a boost from JPM and GS, both of which were up in the pre-market. The $DJI is showing some early strength, outpacing pre-market gains by the SPX.Today's earnings are just the start of a busy week of reporting. Stay tuned for Netflix Inc (NASDAQ: NFLX) on Thursday, the first of the "FAANG" stocks to open its books. Abbott Laboratories (NYSE: ABT) and Johnson & Johnson (NYSE: JNJ) will be the vanguard reporters in Health Care. More big banks are on the way tomorrow and Thursday, too. Bank of America Corp (NYSE: BAC), MS, and GS all report this week.Keep in mind what we said here yesterday about what to watch. Are companies providing any kind of guidance for the rest of the year, and are they finding ways to cut costs? Are more layoffs looming? These are questions analysts likely will ask across every sector.JPM remains in focus as the session begins. Many investors probably want to hear what Dimon has to say in the company's earnings call. His comments about the economy weren't too detailed in the press release, so it's possible he'll have more to say in front of analysts. Keep in mind that sometimes the market can move based on his words.The other story today is Tesla Inc (NASDAQ: TSLA) shares powering back in pre-market trading after getting slammed late yesterday.Rally Flames Out To Start Week This week, turnaround Tuesday couldn't wait.Monday's massive pullback that turned early gains into steep losses got the first week of earnings season off to a less than a lovely start. At one point on Monday, the S&P 500 Index (SPX) had moved into positive territory for 2020. That didn't last long, as a wave of sellers showed up in the afternoon to usher most of the major indices into the red. The Nasdaq (COMP) suffered the worst losses, down more than 2%.Some of the most closely-followed stocks like TSLA and the FAANGs--some of the stocks that had paced the long rally--all lost ground Monday after moving sharply higher earlier. Information Technology ended up the worst performer on Monday's sector popularity chart. That raised concerns about overall sentiment because when Tech sneezes, the rest of the market sometimes catches a cold. Tech is the largest sector as far as the SPX market cap (see more below).Monday's late slide--which puts the market into some shaky territory on the charts this morning--might have reflected worries about the reopening getting slowed down in parts of the country as virus cases continued to soar. News that Los Angeles and San Diego won't open schools on time this fall really helped put a dagger in the market. If schools don't open, businesses could continue to struggle as parents find themselves double-tasking.Restaurants and bars in the biggest U.S. state were also ordered to close indoor access--not good for business or for anyone hoping to go out and spend a little money. This is the kind of backward path many people worried about when caseloads started rising last month. If it spreads to more states, the pressure on stocks might continue.Concerns about potential worsening relations between the U.S. and China possibly added some extra steam to Monday's late hammering. However, some analysts pointed out that despite COMP's steep turn lower, the overall upward trend remains in place on the charts (see chart below).Could Monday's Tech Reversal Hint At Sector Rotation? Investors might need a new catalyst to get interested in SPX sectors beyond Tech, which already makes up a growing percentage of the index. As of late last week, Tech stocks were 28% of the SPX, up from 21% in late 2016, Barron's reported. The Communication Services sector, which includes some major "tech" names like Amazon Inc (NASDAQ: AMZN), Netflix Inc (NASDAQ: NFLX), and Alphabet Inc (NASDAQ: GOOGL), now forms 11% of the SPX, up from 2.5% back then. So nearly 40% of the SPX is two sectors out of the 11 total.The interesting thing is that while COMP, the mega-techs, and chip stocks kept up a blistering pace since the June swoon, the rest of the market has basically walked in place.This huge divergence between COMP and the other indices isn't likely to last forever. One argument is that COMP could pause as other indices catch up, while another suggests COMP could roll back to be more in line with the others.We still haven't seen the cyclical and defensive sectors like Financials, Utilities, and Staples get much of a bid since a small initial rally back in late May that fizzled. In a truly healthy market, VIX would be a lot lower than it is now and there'd be more of a well-rounded upward move across sectors.With all that in mind, some analysts saw the late wilt in COMP yesterday accompanied by strength in Financials and Industrials as a possible sign of some sector rotation. However, it's just one day, and it's not the first time that's happened recently. Other "value" rallies haven't received much follow-up.Treasury Market Still Paints Grim Picture It also wasn't so great to see 10-year Treasury yields unable to hold the 0.66% level they were at earlier Monday. By late Monday, the yield was losing ground back toward 0.62%.Last week's low of just below 0.57% could remain a level to watch because the yield did rebound nicely from there. Still, it would likely be a genuine signal of economic confidence if the yield headed back toward the high of around 0.9% seen in early June. Confidence in the economy might also get a boost if June retail sales on Thursday come in ahead of expectations. They rose more than 17% in May, which could be tough to beat.One positive takeaway from yesterday's late reverse move is that the SPX maintained its grip on 3150, a psychological support level. The index remains pretty range-bound, and judging from its inability to hold yesterday's highs, it seems like that 3000-3200 range has a pretty firm hold for now.CHART OF THE DAY: COULD IT BE A KEY REVERSAL DAY? When the bear engulfs the bull, it's time to pay attention. What looked like another record high turned into a more than 400-point drop in the Nasdaq Composite (COMP--candlestick) yesterday. When the high is greater than the last trading day's high and the close is less than the last trading day's close and trading range, it's referred to as a bearish engulfing pattern. The second bar literally engulfs the smaller one and suggests a potential reversal. It could be a short-term one since the uptrend in COMP is still intact. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.Fact-Finding Mission: If you've been watching the $DJI lately instead of the broader SPX, you might be getting a disjoined picture of the markets. Remember, the $DJI is just 30 stocks, and it's been getting pushed and pulled by a few of them going up or down sharply over the last week or two. For instance, on two separate days last week, Boeing (BA) and Walgreens Boots Alliance (WBA) really pushed down the $DJI to losses far worse than the ones suffered by the SPX, where those companies were one out of 500 instead of one out of 50.Then on Friday, big 3% rallies in a couple of the $DJI's bank stocks helped the $DJI post gains by midday that doubled gains in the SPX. Industrials and Financials helped the $DJI to slight gains Monday even while the rest of the market sagged. The point remains that the $DJI draws headlines mostly from its veteran status going back to the 1800's. It's not the best picture of the market on any given day. So watch what you watch.Silver Lining? Industrials got off to a good start for the week. Stocks like 3M (MMM), Honeywell International Inc (NYSE: HON), Caterpillar Inc (NYSE: CAT), and Deere & Company (NYSE: DE) had strong sessions, as it looked like China could be getting some infrastructure spending underway. Bank shares also looked strong going into their earnings reports. Resort and casino firms also got a boost from China, with Wynn Resorts Limited (NASDAQ: WYNN), MGM Resorts International (NYSE: MGM) and Las Vegas Sands Corp (NYSE: LVS) also rising. This could be a function of their businesses in Macau possibly improving as quarantine-related restrictions have eased.Another possibly related trend lately is a decent rise in many commodities. This includes copper, often seen as a global barometer for industrial demand. Copper prices are up 88% from their mid-March low, and on Monday reached their highest levels since early 2019. This could reflect hopes for U.S. infrastructure spending initiatives, or ideas that Chinese demand for raw materials might be improving.Why Watch Volatility? Here's a Reason: Even before things turned lower yesterday, the Cboe Volatility Index (VIX) looked like it was trying to tell investors something. It was up 9% Monday right before stocks really did their about-face, another reminder how it can be important to keep your eyes on the VIX if you're trading stocks. Sometimes a VIX rally can mean tough times ahead for the market, as we saw a month ago when VIX rose for a few days during a stock market rally. Stocks then plunged nearly 6% on June 11.No one's forecasting a repeat of that, necessarily. However, a rising VIX could reflect more investors getting cautious about the path ahead, which isn't too surprising seeing how far major indices--especially COMP--have come over the last few months.This week's economic calendar. Source: Briefing.comTD Ameritrade® commentary for educational purposes only. Member SIPC.Photo by Getty Images.See more from Benzinga * NFLX Stock Gains Put Pressure On Earnings Expectations * JP Morgan, Wells Fargo, And Citigroup Lining Up To Kick Off Earnings Season * Will Banks Vault? Earnings Season Likely To Disappoint, But Investors Hope To Hear 2021 Optimism(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
The S&P 500 and Nasdaq indexes fell in choppy trading on Tuesday as investors digested a mixed bag of quarterly earnings reports from U.S. lenders, with new business restrictions in California weighing on technology stocks. The losses in bank shares pushed the S&P 500 banks index down 0.9%.
(Bloomberg Opinion) -- During the past decade, when the U.S. economy could seemingly do no wrong, analysts could be forgiven for rolling their eyes every time JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon mentioned the resilience of his bank’s “fortress balance sheet.”Now, though? In the midst of a global pandemic, taking refuge in a fortress sounds quite appealing.JPMorgan, the biggest U.S. bank, reported second-quarter earnings on Tuesday that showed adjusted revenue of $33.82 billion, up 14% from a year ago and beating the highest analyst estimate. That’s an impressive counterbalance to $10.47 billion set aside for credit losses, more than anyone predicted and exceeding its record $8.6 billion in loan-loss provisions from the beginning of 2009. Digging further into JPMorgan’s earnings presentation, these provisions appear conservative relative to the current trajectory of the U.S. economic recovery and the health of household balance sheets. Consider its snapshot of consumer-lending relief programs. Just 2.1% of its consumer card accounts have a payment deferral, along with 4% of business cards, 6.9% in home lending and 7.4% in automobiles. Of those needing a delay, about nine in 10 were less than 30 days past due at the time of the request, an indication of otherwise creditworthy clients falling on temporary hard times. More than half of card accounts with a deferral have made at least one payment anyway. The trailing seven-day average of deferrals granted is down 95% from its peak in early April, right around the time JPMorgan last reported earnings. Even though net charge-offs, which are loans the bank no longer expects to recover, increased by 6% from the first quarter to $1.56 billion, it fell far short of analysts’ predictions for $2.78 billion. By and large, these are positive trends.So, why the huge build-up in provisions for loan losses? Simply put, because JPMorgan could afford to do so, given the bank’s record quarterly revenue. Plus, for all of Dimon’s star power on Wall Street, he admits he can’t be sure what will come next for the global economy: “Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy. However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm. We ended the quarter with massive loss-absorbing capacity — over $34 billion of credit reserves and total liquidity resources of $1.5 trillion, on top of $191 billion of CET1 capital, with significant earnings power that would allow us to absorb even more credit reserves if needed. This is why we can continue to serve all of our stakeholders and to pay our dividend — unless the economic situation deteriorates materially and significantly.” JPMorgan is in an enviable position among its Wall Street peers. While Wells Fargo & Co. posted its first quarterly loss since 2008 and Citigroup Inc. managed to salvage a $1.3 billion profit, JPMorgan’s second-quarter profit dropped less than forecast to a solid $4.69 billion. It has huge sales and trading operations and a fleet of investment bankers to go along with its consumer-focused divisions. Markets revenue overall surged 79% from a year ago while investment banking fees jumped 91%. That presented Dimon with the opportunity to ramp up loan-loss provisions and boast about his “fortress” while still topping bottom-line estimates. It’s a win-win all around.Read more: Wells Fargo Hits Rock Bottom. Can It Get Worse?Yet the opening and closing parts of Dimon’s statement seem to contain a not-so-subtle message to elected officials squabbling over the next round of fiscal relief. Thanks to expanded federal unemployment insurance payments, overall compensation received by Americans bounced back swiftly to a record high rather than remaining depressed like in past recessions, according to Commerce Department data. That, in turn, boosted banks’ deposits. It’s impossible to know specifics, but it stands to reason that without the government’s actions, fewer of those who requested a deferral on their credit-card payments would have had the means to cover their expenses anyway.Meanwhile, since April, JPMorgan’s economic projections have only worsened. The bank now expects the U.S. unemployment rate to be about 10.9% at the end of the year, compared with its forecast for 6.6% in its first-quarter earnings results. However, it was clear three months ago that expecting the jobless rate to just rise “above 10%” and then recover was overly optimistic. JPMorgan’s $8.3 billion of loss provisions in the first quarter suggested a more dire economic scenario. Those assumptions seem to be more aligned now.“In my short lifetime, I’ve seen crises over and over and over and over,” Dimon, the only bank leader who was at the helm in 2008, said during a call with analysts. “We’re not predicting them, we’re just prepared for them.”As Chief Financial Officer Jennifer Piepszak laid out the bank’s results, Dimon briefly stepped in to hurtle through all the ways in which JPMorgan’s balance sheet is fortified. He said it could withstand an additional $20 billion of loan-loss reserves, even though that’s not the expectation. In fact, “if the base-case happens, we may be over-reserved. I hope the base case happens,” Dimon said. He later added that he “wouldn't completely rule out” buying back shares in the fourth quarter. “I hope we can do it before it goes way up.” Earlier this year, I called JPMorgan the “king of Wall Street.” That’s proving to hold true even during the coronavirus pandemic. With this kind of performance, expect Dimon to keep bragging about his fortress.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- JPMorgan Chase & Co.’s results were one more marker of the disconnect between ebullient markets and concern about the U.S. economy.The biggest U.S. bank said second-quarter profit fell 51% to $4.69 billion, a smaller drop than forecast, as record trading revenue helped counter the biggest loan-loss provision in the firm’s history. It’s the second consecutive quarter that trading set a record, as the bank’s Wall Street unit is helping prop up a consumer-lending division struggling with business closures and swelling unemployment rolls.The results didn’t show as much impact from the global economic slowdown as analysts expected, in part because of government stimulus programs that provided a cushion to consumers and businesses. JPMorgan’s executives said they are girding for more pain ahead.“This is not a normal recession,” Chief Executive Officer Jamie Dimon said on a conference call. “The recessionary part of this you’re going to see down the road.”The firm’s fixed-income trading revenue doubled from a year earlier and the equity-markets unit surged more than 30% as trading desks benefited from a roller-coaster year. After the pandemic drove stocks into the fastest bear market ever in March, the S&P 500 mounted one of the biggest rallies in nine decades, boosted by stimulus measures and optimism over a swift economic rebound.Fixed-income traders generated $7.3 billion, a figure that by itself would have set a record for overall trading even if the equities group produced nothing.Dimon said there’s little chance the bank will have to cut its dividend, “unless the economic situation deteriorates materially and significantly.”JPMorgan was the only major Wall Street bank that didn’t suffer a loss during the financial crisis, and the second-quarter results offer a hint at what’s to come when the rest of the largest U.S. lenders report this week. The four biggest U.S. banks’ combined earnings are expected to have fallen to the lowest in more than a decade in the second quarter, according to analyst estimates compiled by Bloomberg before Tuesday’s results.The bank generated $9.72 billion from trading stocks and bonds, 79% more than a year earlier and a bigger jump than analysts were expecting. That and a 91% gain in investment-banking fees helped the company easily remain profitable even as it set aside $10.5 billion to cover future bad loans, a record that was also higher than estimates.JPMorgan gained 1.7% to $99.29 in New York trading at 9:33 a.m., paring this year’s decline to 29%.Citigroup Inc. fell 1.4% after reporting results that included a surge in bond-trading revenue but also predictions for a slower economic rebound and a wave of potential defaults. Wells Fargo & Co. slid 7% after the bank reported its first quarterly loss since 2008 and cut its dividend more than analysts expected.Charge-Off SurpriseDespite the surprise profit win, JPMorgan’s balance sheet is showing more signs of stress than it did at the end of the first quarter, when stay-at-home orders were still just a few weeks old. Net charge-offs, overdue loans the bank no longer expects to recover, rose 6% from the first three months of the year to $1.56 billion in the second quarter. But that was far less than the $2.78 billion predicted by analysts.“Next year will be much heavier on charge-offs,” Chief Financial Officer Jennifer Piepszak said on the conference call.Loan defaults could start to surge in the second half of the year as the effect of the government’s stimulus measures and the bank’s loan-deferral programs start to wear off.Revenue rose across all of the bank’s business lines except the consumer unit, where it fell 9% from a year earlier to $12.2 billion. The business reported a loss of $176 million amid higher credit costs and a drop in loans. The loss for the unit, which has historically been the bank’s most profitable business, was its first since at least 2011, which was before the bank combined its retail and credit-card groups.Net interest income slipped 4% to $13.9 billion in the second quarter as the impact of lower interest rates offset a 2% increase in the bank’s total loan book compared with last year. The bank on Tuesday also kept in place its outlook for full-year lending income after raising it two months ago to $56 billion.Other Key Results:Second-quarter net income fell to $4.69 billion, or $1.38 a share, from $9.65 billion, or $2.82, a year earlier. That beat the $1.01 per-share average estimate of 25 analysts surveyed by Bloomberg.Revenue from fixed-income underwriting rose 55% to $1.27 billion as companies rushed to borrow after the Fed slashed interest rates and set up an unprecedented series of programs to support corporate debt markets.(Updates with Dimon’s comments starting in the fourth paragraph, Citigroup and Wells Fargo in the 11th, CFO in 13th.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
This morning we see Q2 results from some of the heaviest hitters on Wall Street: JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC).
Profits for Citigroup were better than the 35 cents a share analysts expected, but 73% below the level in the second quarter of 2019.
Marty Mosby, Vining Sparks Director of Bank and Equity Strategy joins the On the Move panel to breakdown the latest bank earnings.
Wells Fargo, JPMorgan, and Citigroup all reported second quarter earnings. RW Baird Analyst David George joins the On the Move panel to break down the results.