JPMorgan profit soars in pandemic recovery but questions linger on lending outlook

By Anirban Sen and Elizabeth Dilts Marshall

(Reuters) -JPMorgan Chase & Co second-quarter profits jumped 155% as the U.S. economy continued to rebound, but executives warned the sunny outlook would not make for blockbuster revenues in the short term due to low interests rates, weak loan demand and a slowdown in trading.

The country's largest bank, seen as a bellwether of the U.S. economy, was boosted by the release of another $3 billion it had set aside to cover pandemic losses and a surge in dealmaking, even as trading revenues slumped 28% from last year's record-breaking levels.

As the nationwide vaccination drive allows Americans to get back to work, there were signs consumer spending was bouncing back. Combined debt and credit card spending was up 22% compared with the same quarter in 2019, which analysts consider a better yard stick for normal consumer spending patterns.

"We have bright spots in certain pockets and the consumer spend trends are encouraging," Chief Financial Officer Jeremy Barnum said on a call.

He cautioned, however, that with corporate clients and consumers flush with cash thanks to extraordinary economic stimulus and low interest rates, core lending revenues may not benefit this year from the economy roaring back to life.

JPMorgan (NYSE:JPM)'s consumer bank reported an 8% fall in net interest income, while average loans in its consumer and community banking unit were down 3%. And despite profits reaching $11.9 billion, overall revenues fell 7% to $31.4 billion.

"While rates and loan growth continue to be headwinds in general, there are clear signs that the economy continues to improve," Evercore ISI analyst Glenn Schorr wrote, noting the uptick in credit card spending and client investment activity.

JPMorgan's corporate and investment banking revenues declined 19%, mainly due to a 44% slump in bond trading activity from last year's high, which bank executives had warned were unsustainable. Equity markets, which have been buoyed by a boom in public offerings, were a bright spot, with revenue up 13%.

The bank's shares fell in morning trading alongside rivals. On a call with the executive team, analysts raised some concerns over JPMorgan's strategy for boosting core revenues, including its digital and international strategy, sparking frustration from CEO Jamie Dimon.

"My God, the company is doing quite fine," he exclaimed.

"Our bankers, our traders, our credit card, our debit card, our merchant services, our auto business, our digital, it's doing pretty good."

DEALMAKING CHEER

While trading revenue slumped 28% to $8.1 billion, the overall Wall Street banking business remained strong during the first half of the year, driven by a record volume of large deals. Investment banking revenue rose to $3.4 billion as fees jumped 25%.

Capital markets also remained active and a surge in IPOs more than made up for a slowdown in deals made through blank check mergers.

Goldman Sachs (NYSE:GS) smashed analysts' estimates for second-quarter profit as Wall Street's top investment bank also capitalized on record global dealmaking activity.

JPMorgan's profit exceeded analyst estimates, rising to $11.9 billion, or $3.78 per share, in the quarter ended June 30, from $4.7 billion, or $1.38 per share, a year earlier.

The country's largest lenders last year put aside billions to cover pandemic loan losses which, thanks to economic stimulus, did not materialize, allowing banks to release those reserves.

Stripping out the reserve release boost, JPMorgan's net quarterly profit was $9.6 billion.