Leading U.S. bank JPMorgan Chase has survived
the debt crises in Europe and the U.S. better than had been expected,
with a 13 percent year-on-year jump in quarterly profits announced
Thursday.
The earnings of $5.4 billion in the second quarter came on
revenues of nearly $28 billion, up 7 percent over the second
quarter of 2010 and 6 percent over the first-quarter volume.
The results provided relief across Wall Street and the global
banking world, which have watched with increasing worry the debt
crisis washing across Europe and the high-stakes brinkmanship in
Washington over the U.S. debt.
Shares rose by 2 percent for JPMorgan in early trading, and 1 percent for Citigroup, Bank of America and Goldman Sachs. Deutsche Bank
also began climbing.
JPMorgan was the first of the six-largest U.S. banks to report
quarterly earnings, providing a barometer for the industry. Citigroup
will report on Friday, followed by Bank of America, Goldman Sachs,
Wells Fargo and Morgan Stanley next week.
JPMorgan's figures surpassed analysts' forecasts, the financial
agency Bloomberg reported. JP Morgan's per-share profit in the
quarter was $1.27, as against the average of $1.21
predicted by 28 Bloomberg analysts.
Company head Jamie Dimon called the results "solid."
With the results, JPMorgan showed once again why it is seen as the
sector leader in the U.S. The company appears to be unstoppable.
Analysts had feared that investment banking would suffer because
investors are holding back with their money during the debt crisis
now raging from Greece to Ireland.
But JPMorgan appears to have the situation under control.
Weaknesses in the investment banking department are balanced out by
improving business with consumer clients, above all with credit
cards, the company said.
"Within our wholesale credit portfolio, credit trends appear to
have normalized," Dimon said in a statement.
Dimon indicated that JPMorgan is expanding its international
presence, in addition to having branches across the entire United
States.
No other banking firm on Wall Street is as secured against crisis
as JPMorgan, and worldwide there is only a handful of banks that
measure up to its performance. Even the financial crisis and
recession pushed profits into its pockets, while rivals had to be
propped up by Washington or declare bankruptcy.
With a mixture of investment banking and private clientele,
JPMorgan provides a model for Deutsche Bank, whose chief Josef
Ackermann took over Germany's Postbank in order to reduce its
exposure to more risky investment banking. Deutsche Bank is to
release its quarterly report on July 26.
There are however some lingering effects of the 2008 real estate
bust and financial crisis for JPMorgan. Many customers who took out
inflated loans against their homes during the US real estate boom
have still not paid off their debts, and Dimon said he expected
credit losses to "remain elevated."
"We have been working hard to fix our problems and address past
mistakes. We have already incurred significant costs, charged-off
substantial amounts and established significant reserves for
mortgage-related issues," he said. But he expected the costs to
"normalize" in time.
During the real estate boom, mortgage credit was extended to
people who often had almost no income or collateral. Loan
foreclosures led to repossession of many homes which currently flood
the market, standing empty and pulling down real estate values even
more.
Investigations are currently under way into whether JPMorgan and
other banks moved to foreclose with too much speed and too many false
documents, and they face fines and costs to make up for the
mistakes. JPMorgan also just recently paid a $210 million
penalty for dubious transactions in mortgage securities during the
heyday of the real estate boom.
In addition, JPMorgan is in the spotlight for its involvement in
Bernard Madoff's $65 billion Ponzi scheme. JPMorgan was
Madoff's home bank.
Representatives of Madoff's victims argue that the bank must have
known about Madoff's pyramid scheme and failed to take any steps
against it. Their lawyers are demanding $19 billion in damages
from the bank.
