JPMorgan's (JPM) Earnings Surge 31%
Last Friday, JPMorgan Chase & Co. (JPM), the largest American bank by total assets, reported a surprising 31% year-on-year rise in second quarter earnings that topped analyst estimates. For the second quarter, JPMorgan earned $1.60 per share, or $6.5 billion, up from the $1.21 per share, or $4.96 billion, it reported in the prior year quarter. Analysts had expected the bank to earn $1.45 per share. These rosy numbers reflect the a continuation of three consecutive years of record earnings under CEO Jamie Dimon.
The bank attributed increased trading profits from stocks and bonds during the quarter. Revenue rose from $22.9 billion to $26 billion. Daily Chart
JPMorgan's profits from bonds have likely weakened during the current quarter, due to concerns regarding the Fed's imminent tapering of QE3 later this year. Long-term interest rates soared as a result and made mortgages much less attractive. However, profits from equity trading are likely to increase. FBR Capital Markets analyst Paul Miller noted, "Mortgage banking will be down, but trading will be up." Refinancings also slumped as 30-year loans surged from 3.51% to 4.46% after Bernanke's hints at the end of QE3 spooked both bond and equity markets. Refinancing applications plunged 42% between May 17 and July 5, according to the Mortgage Bankers Association. As a precaution, JPMorgan is still cutting jobs rapidly in response to weakness in mortgages. By 2014, the bank plans to 13,000 to 15,000 jobs in its mortgage unit and 3,000 to 4,000 jobs in the community banking segment. The bank had employed approximately 259,000 people at the end of last year. These job reductions are part of a major effort to reduce costs as the bank continues to deal with historically low interest rates, which have caused profit margins to contract on lending as well as yields on investments to decline. 10-year Treasury yields spiked from 1.63% on May 2 to 2.74% on July 5, its highest point since August 2011. These higher long-term rates reduce the value of JPMorgan's bond portfolio and mortgage fee revenue. JPMorgan's competitor, Wells Fargo (WFC
), is even more highly exposed to the mortgage business. Although that net interest margin squeeze has been hurting the whole banking sector, analysts forecast that profits at the six largest banks in the United States will climb 20% during the second quarter, thanks to favorable comparisons to last year's earnings, when most of the banks were being dragged down by Europe's sovereign-debt crisis. JPMorgan also made a terrible bet on derivatives a year ago which cost the bank $6.2 billion over the first nine months of the year and nearly cost Jamie Dimon his job. Despite all these headwinds, shares of JPMorgan are up more than 60% over the past twelve months, and still trade at less than 10 times trailing earnings. The stock also pays a robust 2.76% quarterly dividend. Other News About JPM JPMorgan Quarterly Earnings Surge
JPMorgan posts a big gain in quarterly earnings. JPMorgan Earnings Up 31% in Second Quarter
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Published on Jul 16, 2013
By Leo Sun