JPM JP Morgan Chase and Co

By David Benoit 

JPMorgan Chase & Co. set aside $10.47 billion to cover potential losses on loans to borrowers hurt by the coronavirus pandemic, cutting its second-quarter profit in half.

The nation's biggest bank by assets is stockpiling reserves, worried about how the pandemic will affect the financial health of its consumer and corporate clients. JPMorgan put aside more than $8 billion for potential loan losses in the first quarter, which ended just weeks into the crisis.

The New York bank posted a profit of $4.69 billion, down from $9.65 billion a year earlier. At $1.38 a share, the results exceeded the average analyst estimate of $1.15 a share, according to FactSet. Per-share earnings were $2.82 a year ago.

Revenue rose 15% to $33 billion.

The pandemic also took a toll on two other big U.S. lenders. Wells Fargo & Co. posted its first quarterly loss in more than a decade and socked away $9.57 billion to prepare for a wave of loan defaults. Citigroup Inc.'s second-quarter profit fell 73%, weighed down by the $7.9 billion the bank set aside for an expected increase in soured loans.

JPMorgan's outlook for the economy has darkened since the bank reported first-quarter earnings, and its increased loan-loss provisions reflect that view. The bank put aside extra to prepare for unemployment to remain above 10% through the first half of next year, said Chief Financial Officer Jennifer Piepszak.

JPMorgan Chief Executive James Dimon said a massive government-stimulus effort and expanded unemployment benefits are keeping U.S. consumers and businesses afloat for now, but they won't last forever.

"This is not a normal recession," Mr. Dimon said. "The recessionary part of this you're going to see down the road."

JPMorgan's second-quarter loan-loss provision included $1.56 billion in net charge-offs and $8.9 billion it added to its reserves for loans that might default in the future. Analysts had expected the total to be $8.37 billion.

The bank's models predict a wave of defaults over the coming year, especially if the virus cripples the economy for longer than expected.

The biggest portion of the quarter's provision -- $5.83 billion -- came from the consumer bank, while $2 billion came from the corporate and investment bank and another $2.43 billion came from the commercial bank.

The provisions boosted the bank's total allowance for potential credit losses to $34.3 billion as of the end of June.

JPMorgan's shares have fallen 30% this year, slightly better than its big-bank rivals but far worse than the overall market. Banks have been hammered on fears that their profits will be eaten by loan losses and that margins will be dragged down if interest rates stay low for the foreseeable future.

In premarket trading, shares rose 2.4% to $100.

The bank's net interest margin, the difference between what it charges borrowers and pays depositors, fell to 1.99% from 2.37% in the first quarter.

In a bright spot, JPMorgan's corporate and investment bank posted a 66% surge in revenue, with its trading division up 79%. The bank's fixed-income trading unit recorded $7.34 billion in revenue, double from a year ago, and equities trading posted $2.38 billion in revenue, up 38%. Investment-banking revenue also nearly doubled to $3.4 billion, including gains on some positions.

The results were boosted by a volatile stock market and investors seeking yield, as well as companies of all sizes raising funds from stock and bond offerings.

In the consumer and small-business banking operations, revenue fell 9% and the provisions it set aside for loan losses sent it to a $176 million loss. Spending volume on the bank's credit cards fell 23%.

It was the first time the consumer business recorded a loss since the first quarter of 2011, capping years of soaring growth.

The commercial bank slid to a $691 million loss for the quarter. In asset and wealth management, profit fell 8% to $658 million on flat revenue.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

July 14, 2020 17:24 ET (21:24 GMT)

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