By Saabira Chaudhuri and Emily Glazer
J.P. Morgan Chase & Co. and Goldman Sachs Group Inc.
reported their second-quarter profit beat expectations as trading
revenue for both banks held up better than many analysts had
forecast.
Shares of the firms and other banks rose Tuesday as the two
trading powerhouses told investors that conditions weren't as dire
as some feared after various bank executives warned about the
environment in May.
J.P. Morgan reported a profit of $6 billion, or $1.46 a share,
compared with $6.5 billion, or $1.60 a share, a year earlier.
Revenue declined 3% to $24.45 billion, but both figures beat
analysts' projections, as tracked by Thomson Reuters, of $1.29 a
share in earnings and revenue of $23.76 billion.
Goldman, meanwhile, became the first major U.S. bank to report
higher second-quarter revenue than reported in 2013. The New York
firm, known for its heavy reliance on trading and investment
banking, said revenue climbed 6% to $9.13 billion, while profit
rose 5.5% to $2.04 billion.
The update from the banking giants helped send most bank shares
higher on an otherwise flat day for the stock market. J.P. Morgan
shares rose 3.9% in early afternoon trading, while Goldman rose
1.2%.
J.P. Morgan's latest results came two weeks after Chief
Executive James Dimon publicly disclosed that he has throat cancer.
The 58-year-old Mr. Dimon said, on a morning call with media, the
treatable cancer hasn't spread and doctors have spent the past few
weeks completing his treatment plan. "I'm hoping the next time I
talk about this at all, in eight weeks or something, I'll tell you
it's complete and the prognosis is very good."
During the quarter, J.P. Morgan reported that its markets
revenue--which includes revenue from its large fixed-income arm as
well as from equities trading--fell only 14% from a year earlier,
to $4.65 billion.
The decline was less severe than the 20% that J.P. Morgan had
predicted in May and is roughly in line with the 15% decline that
rival Citigroup Inc. reported on Monday.
Goldman, which hadn't made a specific forecast earlier, reported
that trading revenue in fixed-income, currencies and commodities,
or FICC, fell 10% from the same quarter a year ago, to $2.22
billion. Citigroup, on Monday, reported its own FICC revenue had
dropped 12% in the second quarter.
J.P. Morgan's better-than-expected trading results come after
analysts recently noted that the trading activity levels have
improved in recent weeks, with Citigroup analyst Keith Horowitz
predicting that markets revenue for the industry could be flat to
up in the second half of the year.
Revenue from fixed-income markets--one of J.P. Morgan's
traditional strengths--fell 15% from the prior year on what the
bank said was "historically low levels of volatility and lower
client activity across products." Equity-markets revenue of $1.2
billion was down 10% from the year earlier, on what J.P. Morgan
said was weaker derivatives revenue.
J.P. Morgan's Chief Financial Officer Marianne Lake, on the
media call, cited "generally higher levels of activity" of trading
in June, which lifted results for the second quarter. But that
momentum hasn't carried into July so far, she said. Mr. Dimon added
that the next two quarters are expected to have low activity
compared with the second half of 2013.
The latest earnings figures included a legal expense of 13 cents
a share. J.P. Morgan's litigation expense for the quarter was $700
million, flat with a year earlier, but up from the first quarter,
in which J.P. Morgan reported no material legal expenses.
Meanwhile, compensation expense dropped 5% from a year earlier and
3.2% from the prior quarter, to $7.61 billion.
Investors have recently focused much of their attention on Mr.
Dimon's health. Few large banks associate their image with a single
leader as much as J.P. Morgan, where Mr. Dimon has been both
chairman and CEO since the end of 2006. Mr. Dimon's diagnosis has
raised questions both about the bank's succession plan as well as
the extent to which the CEO will have to pull back from regular
duties while undergoing treatment.
On the call Tuesday morning, Mr. Dimon added that he still
expects to be involved in the business during the treatment whether
in the office, on the phone or by video conference. He will take "a
few weeks of rest" after the treatment, as advised by his
doctors.
Like other banks, J.P. Morgan reported that its investment
bankers are picking up some of the slack for trading desks that are
dealing with a sluggish environment. The bank's equity-underwriting
revenue jumped about 4% and merger advisory revenue jumped 31%.
The bank again showed weakness in its mortgage business as it,
like its peers, continues to reel from a sharp slowdown in
refinancing. Mortgage originations of $16.8 billion fell 66% from
the prior year, although these were roughly flat from the prior
quarter.
But the mortgage weakness doesn't suggest that consumers and
businesses are on their heels. Average loan balances in the
commercial banking unit were $140.8 billion, up 7% from a year
earlier and 2% from the prior quarter.
With revenues still weak--on an adjusted basis, they fell 2.3%
to $25.35 billion--J.P. Morgan has been reining in costs. For the
latest period, the bank said noninterest expense fell 2.7% from a
year earlier, to $15.43 billion.
--Justin Baer contributed to this article.
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Emily Glazer at emily.glazer@wsj.com
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