JP Morgan Q2 - Increased Loan Provision

JPMorgan has officially kicked off the second-quarter earnings season with mixed numbers. The biggest US bank by assets produced better than expected results, but set aside a further $10.47 billion (taking the total to $34.3 billion as of the end of June) to cover what is to come in potential loan losses.

The New York City based bank reported revenues of $33 billion, up 15%, and profits of $4.69 billion, down 51% for the quarter. The biggest profit drivers were fixed-income trading which set a record of $7.3 billion in revenues; corporate and investment banking which grew revenues by 66%; and the equities trading unit which saw revenues soar by 38%.

The consumer and business banking unit, which used to be the biggest driver of earnings saw its revenues fall by 9% to $12.2 billion, making a loss of $176 million (after the provision), its first loss since 2011. The CEO, Jamie Dimon, believes that the US government has kicked the can down the road by offering temporary relief with stimulus packages to US citizens.

Dimon expects a recession to ensue as the coronavirus cripples the economy for longer than expected, and this will be coupled with a wave of defaults. The positive news is that consumer spending volumes on the bank's credit cards is down 23%, meaning people are being wise about their personal finances.

The low interest rate environment contributed negatively to the banks net interest margin, which is the difference between what the bank charges borrowers and what it pays depositors. Net interest margin has shrunk from 2.37% in the first quarter to 1.99% in the current quarter. JP Morgan still remains the cleanest dirty shirt in the banking laundry basket. After all it's a conservatively run bank, and the only bank that never made losses during the global financial crisis of 2008.