JP Morgan sets aside $10bn for potential defaults as second-quarter numbers beat forecasts

Reported net revenue for the three months to June end was $33.8bn, a 15% improvement year-on-year and higher than the $30.3bn pencilled in by most analysts. Net interest income was off 4%, at $14.0bn, hit by lower interest rates, but non-interest revenue rose 33% to $19.9bn, following a record 79% surge in markets revenue, to $9.7bn, and 54% growth in investment banking fees.

The strong numbers helped offset a weaker performance at JP Morgan’s consumer and community banking division, which slid into the red. It reported a loss of $176m compared to net income of $4.2bn a year earlier, as reserves were built and net revenues – down 26% at $5.1bn – fell on the back of lower customer activity.

Overall, group net income fell 51% to $4.7bn, after the bank build reserves across the firm, with credit provisions of $10.47bn, including reserves of $8.9bn.

Earnings per share were $1.38, down on last year’s $2.82 but well above analyst expectations for around $1.04 per share.

Jamie Dimon, chairman and chief executive, said: “We earned $4.7bn of net income, despite building $8.9bn of credit reserves, because we generated our highest quarterly revenue ever, which demonstrates the benefit of our diversified global business model. Record markets revenue and investment banking fees in the corporate and investment bank more than offset interest rate headwinds and reduced consumer activity.”

Looking forward, Dimon sounded a note caution: “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.”

Shares in JP Morgan were 2% higher in pre-market by 1300 BST, after earlier gaining as much as 4%.

Neil Wilson, chief markets analyst at Markets.com, said: “Extrapolating too much from a single bank’s earnings is always an easy trap to fall into. But the quarterly numbers from JP Morgan indicate Main Street is not doing nearly as well as Wall Street. This is not a surprise, but it begs the question of when the credit losses from bad corporate and personal debt start to catch up with the broader market. Moreover, investors need to ask whether the exceptional trading revenues are all that sustainable.

“The vast amount of liquidity that has been injected into the financial system will keep stocks supported – the cash needs to find a home somewhere, and bonds offer nothing. However, there is clearly a risk that Main Street starts to bite at the ankles of Wall Street.”