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JPMorgan Chase’s earnings beat expectations, as lending jumps

July 14, 2015, 12:22 PM UTC
JPMorgan Profit Rises 76% As Bad Loans Dwindle
A man uses a cell phone outside the JPMorgan Chase & Co. headquarters on Park Avenue in New York, U.S. on Thursday, July 15, 2010. JPMorgan, the second-biggest U.S. bank by assets, said profit rose 76 percent, bouyed by a $6.3 billion reduction in provisions for soured mortgages and credit-card loans from last year. Photographer: Jonathan Fickies/Bloomberg via Getty Images
Photograph by Jonathan Fickies — Bloomberg via Getty Images

JPMorgan Chase’s earnings were better than expected in the second quarter, rising 5% from a year ago. Analysts had expected a slight drop. But the nation’s largest bank only got there by taking out its knife.

What you need to know: Net income for JPMorgan Chase (JPM) rose 5% to to $6.3 billion for the second quarter. That translated to earnings per share of $1.54. Analysts had been expecting $1.44. The bank earned $1.46 per share in the same quarter a year ago. Earnings rose despite the fact that JPMorgan’s revenue dropped just over $800 million in the quarter. Instead, the bottom line boost at JPMorgan, which has been paring back in investment banking and elsewhere, came from cost cutting. Expenses dropped by nearly $1 billion from the same quarter a year ago. In a statement, JPMorgan CEO Jamie Dimon said it was a good quarter, and that the bank had showed that it can meet its cost cutting targets.

The big number: As usual one of the biggest drivers of earnings for JPMorgan was its bond and fixed income markets division, despite rules to stem Wall Street trading. Most of the division’s revenue comes from executing client transactions. Last quarter, JPMorgan has surprisingly good numbers in that area. This quarter JPMorgan’s bond trading division was a disappointment. Revenue fell 10%. Analysts had been expecting a slight dip. JPMorgan said the drop was driven by weakness in its “credit and securitized products” and “currencies and emerging markets.” Stock trading revenue was up 27%, likely driven in part by the swings in the Chinese stock market. But stock trading overall is much smaller than the bank’s fixed income. As a result, JPMorgan’s revenue from its markets and investor services division fell 7%.

What you may have missed: In a good sign for JPMorgan and the economy as a whole, the bank made a whole lot more loans than it did a year ago. Lending rose nearly $45 billion from a year ago, up 6%. The bank said its core loan portfolio, which excludes areas of lending the bank is looking to exit, rose nearly $75 billion, or 12% from a year ago. Consumer lending, excluding credit cards (which were flat), was up 10%.

But there were some bad signs from JPMorgan’s lending division as well. The bank upped its reserves for bad commercial loans by $252 million, citing likely defaults from energy companies. The real estate market has picked up lately, but that wasn’t enough to offset a drop off in refinancing activity, which has slowed as interest rates have started to creep up. JPMorgan’s mortgage banking income dropped by 20%. On the whole though, investors seemed to seen good news in JPMorgan’s second quarter earnings, though they were far from joyous. Muddling along is the new reality for Wall Street. JPMorgan’s shares were up slightly less than 1% in pre-market trading to nearly $69.