JPMorgan Chase reported record profit as investment bankers and equities traders at the biggest US bank smashed expectations, while Citigroup saw costs jump sharply higher.
Fees from investment banking soared past analysts’ estimates, jumping 50 per cent, while the firm’s equity traders notched a 21 per cent revenue jump. The Visa transaction added $7.9 billion to second-quarter profit.
More businesses are doing deals again after a long lull, allowing investment bankers to contribute a larger share of their banks’ bottom lines despite the elevated cost of borrowing, lingering uncertainty posed by the US election and global geopolitical issues.
“There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarisation of the world,” chief executive Jamie Dimon said in a statement. “Therefore, inflation and interest rates may stay higher than the market expects.”
JPMorgan and Citi are the first big US banks to reports this earnings season. Investors are eager to hear from the industry’s top brass on the state of the US economy and expectations for the rest of the year, including the potential impact of US elections in November.
Despite notching the highest quarterly profit in the history of American banking, JPMorgan’s results fell short on a few key metrics. Net interest income came in at $22.7 billion for the quarter, up 4 per cent but slightly below estimates, while expenses climbed more than expected. The bank also took its highest provision for loan losses since the early days of the pandemic.
Shares of JPMorgan fell 0.9 per cent in early New York trading. The largest US banks – with the exception of Morgan Stanley – are up more than 20 per cent this year.
JPMorgan earned $18.1 billion in net income in the second quarter, up 25 per cent from the previous record a year earlier and ahead of analysts’ expectations.
Meanwhjile Citigroup said costs for the year are now likely to be at the high end of the range it previously provided after the bank faced a series of regulatory penalties in recent months.
Citigroup was able to whittle expenses down 2% to $13.35 billion in the second quarter, which was slightly better than the $13.4 billion average of analyst estimates.
Still, for the year, expenses are likely to be at the higher end of the previously provided range of $53.5 billion to $53.8 billion, the New York-based bank said Friday. The bank recorded $56.4 billion in costs for 2023.
The tighter guidance is a sign that the bank’s attempts to reduce costs may not be as straightforward as many investors hoped as the bank pushes on with a major turnaround plan under chief executive Jane Fraser. That effort has been hamstrung at times by regulatory issues and other operational missteps by Citigroup.
Citigroup earlier this month agreed to pay almost $136 million in fines to US bank regulators for making “insufficient progress” on resolving a pair of consent orders that the Federal Reserve and the Office of the Comptroller of the Currency saddled the bank with in 2020.
That was the latest in a string of regulatory setbacks for Citigroup. Last month, the lender and three of its rivals were ordered to improve their blueprints for a hypothetical wind-down after top US regulators found weaknesses in their plans.
Citi said at the time it was “fully committed to addressing the issues identified by our regulators.”
In the second quarter, all five of Citigroup’s major divisions notched gains in revenue compared with the same period a year ago. That helped boost net income for the quarter to $3.2 billion, or $1.52 a share.
“Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Fraser said in the statement. --– Bloomberg
