JPMorgan Chase (JPM), the largest U.S. bank by assets, reported a 31 percent increase in second- quarter profit that beat analysts' estimates as revenue from trading stocks and bonds climbed.
Second-quarter net income rose to $6.5 billion, or $1.60 a share, from $4.96 billion, or $1.21, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 30 analysts surveyed by Bloomberg was for earnings of $1.45 adjusted for a one-time accounting item.
Chief Executive Officer Jamie Dimon, 57, has led JPMorgan to record earnings in each of the past three years as the Federal Reserve's stimulus boosted the economy and the banking industry's results. Concern that the Fed will begin paring bond purchases used to spur growth boosted long-term interest rates during the quarter and probably damped earnings growth at firms including Wells Fargo & Co., analysts' estimates show.
"Mortgage banking will be down, but trading will be up," so earnings will still look good, Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Virginia, said in an interview before earnings were released.
Profits for the six largest U.S. banks will rise by an average of 20 percent in the second quarter, the estimates show, after year-earlier results were hurt by Europe's sovereign-debt crisis, costs from soured mortgages and, at JPMorgan, a wrong- way bet on derivatives that cost $4.4 billion during those three months.
Dimon told investors June 11 that the bank's trading revenue would rise by at least 15 percent from $4.5 billion a year earlier, even after Fed Chairman Ben S. Bernanke indicated on May 22 that the central bank could slow bond purchases as employment improves.
Ten-year Treasury yields that are used to set rates for some consumer and corporate loans rose from this year's low of 1.63 percent on May 2 to 2.74 percent on July 5, the highest since August 2011.
Rising rates reduce the value of banks' bond holdings and cut mortgage-fee revenue for home-lenders such as JPMorgan and Wells Fargo, which is scheduled to report earnings at 8 a.m. New York time.
Refinancings, which accounted for 76 percent of last year's $1.75 trillion in loan originations, slumped after rates on 30- year loans jumped from an average of 3.51 percent the week before Bernanke spoke to 4.46 percent at the end of June, data compiled by Freddie Mac show. Refinancing applications fell 42 percent from May 17 to July 5, according to Joel Kan, an economist at the Mortgage Bankers Association, a Washington- based trade group.
The industry has been cutting staff and reducing expenses in response to slowing global growth and historically low interest rates, which compressed profit margins on lending as well as yields on investments.
JPMorgan is eliminating as many as 19,000 jobs in its mortgage and community-banking divisions through 2014 as Dimon trims expenses, the firm said in February. Employing about 259,000 people at the end of December, JPMorgan will cut 13,000 to 15,000 jobs in its mortgage unit and 3,000 to 4,000 in community banking excluding home lending through the end of next year, the company said. The number of personnel firmwide will shrink by about 4,000 people this year.
The bank's wrong-way bet on credit derivatives in a London unit cost more than $6.2 billion in the first nine months of last year. Under regulatory orders to tighten internal controls following the loss, JPMorgan will face more sanctions in the coming months, Dimon told shareholders in a letter released April 10.
Dimon survived a shareholder vote in May recommending the board split his dual duties as chairman and CEO. The bank will fight "till the end" anyone who sues the company claiming they were misled over the London losses at the chief investment office, he said last month.
The board cut Dimon's pay in half for 2012 after concluding that he bore some responsibility for the trading loss. It also credited his leadership for the lender's performance. JPMorgan reported a third straight year of record profit in 2012 with $21.3 billion of net income.
The Fed and Office of the Comptroller of the Currency took the first regulatory actions against the bank for the trade in January, ordering it to strengthen risk controls and enhance executive pay practices. The board of directors was also directed to take into consideration control weaknesses and "adverse risk outcomes" in compensation awards for Dimon and other top managers.