JPMorgan Chase & Co posted a higher-than-expected jump in second-quarter profit as it wrote off fewer bad mortgages and credit card loans.
The bank managed to make more loans during the quarter than in the first quarter and added staff, signs that bright spots are emerging in a sector long plagued by credit losses and an uncertain regulatory environment. JPMorgan is the first major U.S bank to post quarterly results, and its performance gives hints about how other bans performed in the period.
"For this company to put up these kinds of numbers, given all the pressures the industry is facing, is phenomenal," said Richard Bove, a bank analyst with Rochdale Securities.
But the bank said it still faces big expenses in mortgages as the housing crisis continues to saddle banks with high costs. And while loans at the end of the quarter rose from the first quarter, the average loans outstanding during the quarter declined.
JPMorgan shares were up 2.5 percent to $40.60 in premarket trading Thursday following the results. Stock futures edged higher as the strong earnings offset concern about the U.S. budget deficit talks and Europe's sovereign debt crisis.
The bank earned $5.43bn (£3.36bn), or $1.27 a share, in the second quarter, beating the average Wall Street estimate by 6 cents a share, according to Thomson Reuters I/B/E/S.
The results were up from year-earlier earnings of $4.8bn, or $1.09 a share.
JPMorgan's loan book grew to $689.74bn at the end of the quarter from $686 billion at the end of March as increased business lending offset a two per cent decline in consumer lending. Compared with a year earlier, total loans were down one per cent. Average loans fell to $686.11bn from $688.13bn in the first quarter.
Shrinking loan books and low interest rates since 2008 have made it difficult for banks to post profits, or increase them. A large part of earnings over the past year has come from reversing allowances the banks made earlier for bad loans.
But many analysts are hoping banks will start to post loan growth in the coming quarters, which would be a sign of sustainable increases in profits.
JPMorgan reduced the expense it recorded for credit costs to $1.81bn in the second quarter from $3.36 billion a year earlier. However, that was up from $1.17 billion in the 2011 first quarter.
TAKING SOME TIME WITH MORTGAGES
Chief Executive Jamie Dimon said in the earnings announcement that mortgage costs were down slightly, but cautioned that the housing market was still working through difficulties.
"Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way," he added.
In a sign of the lingering difficulties that JPMorgan and other banks are facing with home loans, JPMorgan said it expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. These repurchases are usually because the bank failed to properly collect payments on the mortgages, or should never have sold them to investors in the first place.
JPMorgan's pre-provision profit, a measure of how much the bank earns before setting aside money for credit losses, fell five per cent from a year earlier to $9.94bn in the second quarter. The change was an improvement from a 20 per cent drop in the same measure in the first quarter.
In the latest quarter the bank did not have to pay a UK tax on bonuses. In the year-earlier period, that tax reduced profits by $550m, or 14 cents a share.
City A.M. Reporter