JPMorgan profit climbs as trading gains outweigh mortgage drop

Credit Trading

Trading revenue rose 18% to $5.37 billion in the second quarter, reflecting better performance in credit and equities products, the bank said. Those figures exclude a $355 million gain from a so-called debt-valuation adjustment in the second quarter as the price of its debt fell, compared with a $755 million gain a year earlier.

Dimon told investors June 11 that the bank’s trading revenue would rise by at least 15% 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% on May 2 to 2.74% 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 also reported earnings today.

Losses on Securities

Under accounting rules, banks can exclude gains and losses from securities categorized as “available-for-sale” from the income statement and instead include them in a line called accumulated other comprehensive income. That line, called AOCI, dropped to $389 million in the second quarter from $3.49 billion in the first quarter, according to figures on JPMorgan’s website.

JPMorgan’s consumer and community banking business, which includes home loans and checking accounts, earned $3.09 billion, down 6% from $3.28 billion a year earlier as mortgage-fee revenue declined.

Mortgage fees and related revenue dropped 20% to $1.82 billion, compared with $2.27 billion a year earlier.

Industrywide refinancings, which accounted for 76% of last year’s $1.75 trillion in loan originations, slumped after rates on 30-year loans jumped from an average of 3.51% the week before Bernanke spoke to 4.46% at the end of June, data compiled by Freddie Mac show. Refinancing applications throughout the industry fell 42% from May 17 to July 5, according to Joel Kan, an economist at the Mortgage Bankers Association, a Washington-based trade group.

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