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The banking industry hopes to lean on its investment banking and cost-cutting efforts in an otherwise ugly second quarter.
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 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. The S&P 500 banks index slipped 1.3% as the banks set aside a combined $28 billion to cover potential losses on loans to borrowers hurt by the coronavirus pandemic. "We're clearly in for more volatility as earnings season is now beginning, and these increases in the virus in California, Texas, Tennessee and Florida are going to continue to keep people on edge," said Randy Frederick, vice president of trading and derivatives at Charles Schwab in Austin, Texas.
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.
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.
U.S. stocks fell slightly at the start of Tuesday's trade as second-quarter earnings season formally kicked off with results from the major Wall Street banks. The S&P 500 fell 0.3% to 3,146. The Dow Jones Industrial Average fell 0.3%, or 64 points, to 26,022. The Nasdaq Composite was down 0.2% to 10,369. Investors are gearing up for an ugly earnings season as company profits and revenues were devastated by lockdown measures instituted to combat the COVID-19 pandemic. At the same time, analysts have lowered the bar. JPMorgan Chase & Co. beat Wall Street expectations but shares of Wells Fargo & Co. tumbled after reporting losses in the second-quarter.
Ken Kaiser, Chief Financial Officer at Temple University, joined Yahoo Finance's "On the Move" to discuss the adverse impact COVID-19 and the administration's plan would have on not only his school but institutions all over the U.S.
Marty Mosby, Vining Sparks Director of Bank and Equity Strategy joins the On the Move panel to breakdown the latest bank earnings.