JPMorgan Chase’s second-quarter results easily topped Wall Street’s consensus estimate, even with a $4.4 billion trading loss from the firm’s Chief Investment Office.
That pre-tax loss, a 69-cent hit to earnings per share after tax, was offset by $1 billion in pre-tax gains, 16 cents per share after tax, from the CIO’s investment portfolio. Even with that big hit from the so-called London Whale trades, JPMorgan’s overall earnings of $1.21 per share were down just 4.7% from a year ago.
The bank recorded net income of $5 billion on $22.9 billion in revenue and Chairman and Chief Executive Jamie Dimon touted strength in the firm’s client-driven businesses. JPMorgan also booked a $545 million gain on a first-loss note related to Bear Stearns, on which it expects full recovery, and $755 million from an adjustment to account for wider credit spreads (which paradoxically are a positive for earnings). Drawing down loan loss reserves also provided a $2.1 billion boost, mostly in the mortgage and credit card segments. “The good news is that these reductions reflected meaningful improvements in delinquencies and estimated losses,” Dimon said of the reserve release.
CIO is the focus though, and Dimon said the bank spent the second quarter significantly cutting back the total synthetic credit risk in the unit’s portfolio. “The reduction in risk has brought the portfolio to a scale that allowed us to transfer substantially all remaining synthetic credit positions to the Investment Bank,” which is better positioned to manage such risks. The move increases the investment bank’s risk profile, “but we believe they will come down over time,” he continued.
Source: Forbes | Steve Schaefer
