By Dow Jones Business News,
July 15, 2014, 10:11:00 AM EDT
By Saabira Chaudhuri and Emily Glazer
J.P. Morgan Chase & Co. reported second-quarter profit that beat expectations as trading revenue held up better
than the bank had forecast, sending shares higher.
J.P. Morgan reported a profit of $6 billion, or $1.46 a share, compared with $6.5 billion, or $1.60 a share, a year
earlier. Revenue declined 3% to $24.45 billion. Both figures beat analysts' projections, which according to Thomson
Reuters were for earnings of $1.29 a share and revenue of $23.76 billion. Shares popped 3.5% in early trading.
The update from the nation's largest bank by assets comes just two weeks after Chief Executive James Dimon publicly
disclosed that he has throat cancer.
The 58-year-old Mr. Dimon said on a morning call with media that the treatable cancer hasn't spread and doctors
have spent the past few weeks completing his treatment plan. "The board is continually briefed on my condition," he
said. "I'm hoping the next time I talk about this at all, in eight weeks or something, I'll tell you it's complete and
the prognosis is very good."
During the quarter, J.P. Morgan reported that its markets revenue--which includes revenue from its large fixed
income arm as well as from equities trading--fell only 14% from a year earlier to $4.65 billion.
The decline was less severe than the 20% that J.P. Morgan in May had predicted and is roughly in line with the 15%
decline that rival Citigroup Inc. reported on Monday.
J.P. Morgan's better-than-expected trading results come after analysts recently noted that the trading activity
levels have improved in recent weeks, with Citigroup analyst Keith Horowitz predicting that markets revenue for the
industry could be flat to up in the second half of the year.
Revenue from fixed-income markets--one of J.P. Morgan's traditional strengths--fell 15% from the prior year on what
the bank said was "historically low levels of volatility and lower client activity across products. Equity-markets
revenue of $1.2 billion was down 10% from the year earlier, on what J.P. Morgan said was weaker derivatives revenue.
J.P. Morgan's Chief Financial Officer Marianne Lake on the media call cited "generally higher levels of activity"
of trading in June, which lifted results for the second quarter. But that momentum hasn't carried into July so far, she
said. Mr. Dimon added that the next two quarters are expected to have low activity compared with the second half of
The latest earnings figures included a legal expense of 13 cents a share. J.P. Morgan's litigation expense for the
quarter was $700 million, flat with a year-earlier, but up from the first-quarter, in which J.P. Morgan reported no
material legal expenses.
Meanwhile, compensation expense dropped 5% from a year earlier and 3.2% from the prior quarter to $7.61 billion.
Investors have recently focused much of their attention on Mr. Dimon's health. Few large banks associate their
image with a single leader as much as J.P. Morgan, where Mr. Dimon has been both chairman and CEO since the end of 2006.
Mr. Dimon's diagnosis has raised questions both about the bank's succession plan as well as the extent to which the CEO
will have to pull back from regular duties while undergoing treatment.
On the call Tuesday morning, Mr. Dimon added that he still expects to be involved in the business during the
treatment whether in the office, on the phone or by video conference. He will take "a few weeks of rest" after the
treatment, as advised by his doctors.
Like other banks, J.P. Morgan reported that its investment bankers are picking up some of the slack for trading
desks that are dealing with a sluggish environment. The bank's equity-underwriting revenue jumped about 4% and merger
advisory revenue jumped 31%.
The bank again showed weakness in its mortgage business as it, like its peers, continues to reel from a sharp
slowdown in refinancing. Mortgage originations of $16.8 billion fell 66% from the prior year although these were roughly
flat from the prior quarter.
But the mortgage weakness doesn't suggest that consumers and businesses are on their heels. Average loan balances
in the commercial banking unit were $140.8 billion, up 7% from a year earlier and 2% from the prior quarter.
But with revenues still weak--on an adjusted basis, they fell 2.3% to $25.35 billion--J.P. Morgan has been reining
in costs. For the latest period, the bank said noninterest expense fell 2.7% from a year earlier to $15.43 billion. J.P.
Morgan last month said it could cut pay for some of its investment-bank employees if trading revenue stays weak, while
The Wall Street Journal recently reported that the bank's Chief Operating Officer, Matt Zames, has redoubled the firm's
focus on cost cutting to include relocating employees, revising third-party contracts and re-examining relationships
dealing with market data, among others.
--Erik Holm contributed to this article.
Write to Saabira Chaudhuri at email@example.com and Emily Glazer at firstname.lastname@example.org
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