JPMorgan notches record quarter on merger flurry, $3-bn reserve release

JPMorgan shares, up 23% this year, fell 0.7% to $156.84 at 9:39 a.m. in New York. Photo: Bloomberg
JPMorgan Chase & Co.’s investment bankers posted their best quarter ever as a record first half in dealmaking bolstered the bottom line.

Fees from advising on mergers and underwriting stocks and bonds soared 25% in the second quarter, smashing analysts’ estimates and boosting net income to $11.9 billion. The results mirrored similar gains at Goldman Sachs Group Inc., which said its investment-banking revenue jumped 36%, also topping estimates.

The reports mark the banking industry’s first look into the economic reopening in the U.S. made possible by widespread vaccinations in recent months. Pandemic-induced volatility led to a string of banner quarters on Wall Street trading desks, and while that boom is quieter now, mergers and acquisitions surged in the first six months of 2021.

JPMorgan released $3 billion in reserves it had previously set aside for bad loans, almost twice as much as analysts had predicted. While much of that went straight to the bottom line, Chief Executive Officer Jamie Dimon downplayed the benefit.

“This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits,” Dimon said Tuesday in a statement.

Adam Crisafulli, an analyst at Vital Knowledge, called the results a “mild disappointment” because the gains relied on investment banking and credit, trends he said were not sustainable.

JPMorgan shares, up 23% this year, fell 0.7% to $156.84 at 9:39 a.m. in New York.

The bank’s non-interest expenses rose 4% from a year earlier, more than analysts expected, and the bank said it plans to spend $1 billion more than its previous guidance.

Compensation was responsible for some of that increase. “We’re going to be competitive in comp no matter what it takes,” Dimon said on a call with analysts.

Loan growth remained elusive, with consumers and businesses still flush with stimulus cash and not yet demanding more financing. JPMorgan’s total loans were flat from a year ago, with loans in the consumer and commercial divisions both down. Executives across the banking industry have cited weak loan demand -- usually a bad sign for banks -- as evidence that consumers and companies are emerging from lockdown with their finances in order.

“We are quite optimistic that the current spend trends will convert into resumption of loan growth through the end of this year and into next,” Chief Financial Officer Jeremy Barnum said on the conference call. “While we wait, the exceptionally low level of net charge-offs provides a substantial offset.”

The firm reported $3.57 billion in investment-banking fees, topping analysts’ expectation of $3.1 billion. M&A advisory fees rose 52% to $916 million. Debt underwriting was up 26% to $1.6 billion and equity underwriting gained 9% to $1.1 billion.

The bank’s traders generated $6.8 billion of revenue in the quarter, down 30% from a year earlier but above the $6.4 billion analysts expected.

Tuesday also marks Barnum’s first earnings report as chief financial officer. He was named to the post in May as part of JPMorgan’s biggest leadership shakeup in years.

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