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Author: Mauricio Carrillo
Senior Reporter
Mauricio Carrillo

JPMorgan Beats The Market After a 79% Surge in Trading Profit

American multinational investment bank and financial services JPMorgan Chase is trading higher on Tuesday after reporting a better than expected quarterly earnings. The rise came after a surge in trading revenues. The whole market sentiment for the financial sector has been improved.

CEO Jamie Dimon said:

We earned $4.7B of net income in the second quarter despite building $8.9B of credit reserves because we generated our highest quarterly revenue ever, which demonstrates the benefit of our diversified global business model.

JPMorgan reported a Q2 GAAP EPS of $1.38, which is a beat of $0.24 regarding previous estimates of $1.04 per share. Revenue announced in the second quarter reporting was $32.98 billion, a beat by $2.75 billion, and a 14.7 percent increase from the same period in 2019.

The top note for the quarter was the increase of 79 percent in trading revenues to a record $9.7 billion amid bond and equities trading.

Bond And Equities Were The Keys

Going deep, bond traders reported $7.3 billion revenues, a 120 percent increase from the Q2 2019. Equities traders posted $2.4 billion in revenues, more than the $2.07 billion expected by the market.

High volatility levels and swings mainly drove the increase in trading revenues in the period between April and June.

Remember that the VIX opened April around the 57.00 level. Although it gradually declined during the whole quarter, its levels remained between 30.00 and 40.00, well above the average of the last nine years around 18.00.

In that line, provisions for credit losses in JPM were reported at $10.47 billion in the Q2, well above consensus of $8.73 billion and the $8.29 billion in the first quarter of 2020.

According to Wolfe Research analyst Steven Chubak, JPMorgan numbers are "eye-popping" and a higher than expected reserve.

Chubak said:

The beat was primarily driven by stronger topline on robust Trading /IB revenues (+$0.35), better efficiency (+$0.23), and lower tax rate (+$0.08), partially offset by higher reserve build (-$0.55).

On the dark side, the retail banking division reported a $176 million loss, well below the $4.2 billion profit last year. Most of this was because of the addition of loan loss reserves.

Jason Goldberg, an analyst at Barclays said:

Big banks are expected to show the largest loan loss provision for any quarter since the Great Recession because of the pandemic.

JPMorgan Expectations For The Second Quarter

JPM Ceo Jamie Dimon said in May that the bank was looking for an economic rebound in the second half of the year, mostly driven by reopening plans. The possibilities for that were "pretty good." However, Dimon acknowledges that right now the uncertainty is enormous.

Jamie Dimon said:

Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy.

JPM Shares Analysis

JPM Daily Chart

Shares of JPMorgan Chase are trading positive on Tuesday amid a better than expected earnings report. However, the unit is back from intraday highs around $100.00, where JPM found stiff resistance.

Currently, JPM is trading at 98,48, which is 0.85 percent up on the day. The chart shows some revival on the upside, especially after breaking above the 50-day moving average at $96.01.

In any case, the JPM unit needs to break above the $100.00 level to give bulls the stamina to extend gains.

According to Credit Suisse, JPMorgan is "setting a high bar for the banks" in terms of the Q2 report. According to the analysts, JPM is an "outperform" share with a target price of $122.00.

Revenue was above forecast (trading!), expenses were below forecast even with revenue upside; credit costs were right in line with forecast (lower losses/more reserve build); RWAs declined 3% qtr/qtr so that + earnings drove CET 1 up 90bps to 12.4%; ROTE 9%.

Meet The Author
Mauricio Carrillo
Mauricio Carrillo
Senior Reporter

Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.

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