J.P. Morgan, Goldman Sachs Beat Expectations -- 9th Update

By Dow Jones Business News, 

By Saabira Chaudhuri and Emily Glazer

J.P. Morgan Chase & Co. and Goldman Sachs Group Inc. reported their second-quarter profit beat expectations as trading revenue for both banks held up better than many analysts had forecast.

Shares of the firms and other banks rose Tuesday as the two trading powerhouses told investors that conditions weren't as dire as some feared after various bank executives warned about the environment in May.

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, but both figures beat analysts' projections, as tracked by Thomson Reuters, of $1.29 a share in earnings and revenue of $23.76 billion.

Goldman, meanwhile, became the first major U.S. bank to report higher second-quarter revenue than reported in 2013. The New York firm, known for its heavy reliance on trading and investment banking, said revenue climbed 6% to $9.13 billion, while profit rose 5.5% to $2.04 billion.

The update from the banking giants helped send most bank shares higher on an otherwise flat day for the stock market. J.P. Morgan shares rose 3.9% in early afternoon trading, while Goldman rose 1.2%.

J.P. Morgan's latest results came 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, the treatable cancer hasn't spread and doctors have spent the past few weeks completing his treatment plan. "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 had predicted in May and is roughly in line with the 15% decline that rival Citigroup Inc. reported on Monday.

Goldman, which hadn't made a specific forecast earlier, reported that trading revenue in fixed-income, currencies and commodities, or FICC, fell 10% from the same quarter a year ago, to $2.22 billion. Citigroup, on Monday, reported its own FICC revenue had dropped 12% in the second quarter.

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 2013.

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.

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.

--Justin Baer contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Emily Glazer at emily.glazer@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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This article appears in: News Headlines

Referenced Stocks: C , GS , JPM

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