JPMorgan profit climbs as trading gains outweigh mortgage drop

JPMorgan Chase & Co., the largest U.S. bank by assets, reported second-quarter profit that beat analysts’ estimates as higher revenue from investment banking and trading overcame a drop in fees from mortgage lending.

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 over the past three years as the Federal Reserve’s stimulus boosted the economy and bank profits. Concern that the Fed will pare bond purchases lifted long-term borrowing costs during the quarter. JPMorgan’s net interest margin, which measures profit on lending, narrowed to 2.2% from 2.37% in the first quarter.

“Their investment bank did very, very well, but they want to see core earnings going up, they want to see that balance sheet making money,” Paul Miller, an analyst at FBR Capital Markets, told Betty Liu and Erik Schatzker on Bloomberg Television. Instead the net interest margin “contracted, loan growth was relatively flat.”

Shares of the company rose to $55.34 at 10:02 a.m. in New York from $55.14 yesterday.

Accelerated Cuts

Chief Financial Officer Marianne Lake, speaking today on conference calls with journalists and analysts, estimated that demand for mortgage refinancings could drop 30% to 40% in the second half. The bank may accelerate a job-cut program announced earlier in the year, she added.

JPMorgan’s profits in the quarter benefited from an improvement at the unit that lost $4.4 billion on wrong-way derivatives bets in last year’s second quarter. Another contributor was the release of $1.39 billion in reserves that had been set aside to cover future loan losses.

Total revenue rose 13% from a year earlier to $26 billion. The biggest unit, consumer and community banking, showed a 3% decline from a year ago to $12 billion, while corporate and investment banking, run by Daniel Pinto and Michael Cavanagh, increased 10% to $9.88 billion.

The bank released about $550 million of reserves from the credit-card unit as consumer delinquencies and charge-offs improved, a trend that will continue for several more quarters, Lake told analysts on a call today. She said the net interest margin was compressed as the bank complied with regulators’ demands that it hold more liquid assets.

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