Jamie Dimon, chief of JPMorgan Chase.Credit Mark Wilson/Getty Images Related Links JPMorgan Chase reported an 8 percent slide in second-quarter earnings on Tuesday, the latest sign that the bank is grappling with lackluster revenue from trading and a slowdown in mortgage lending.
Those challenges, which have been broadly buffeting the banking industry, weighed on JPMorgan's profit.
The net earnings of $25.3 billion, or $1.46 a share, exceeded Wall Street analysts' expectations of $1.29 a share on revenue of about $23.8 billion.
As the nation's largest bank, JPMorgan's earnings are always closely watched by analysts and investors seeking to divine more about how the broader banking industry will fare.
Cementing JPMorgan's role as a kind of bellwether for the broader industry, the bank typically kicks off Wall Street earnings season. This quarter, that role was occupied by Wells Fargo, which reported a slump in revenue thanks, in part, to a slowdown in mortgage refinancing.
Another JPMorgan rival, Citigroup, which reported its second-quarter earnings on Monday, continued to grapple with a slowdown in both debt and currency trading.
Together, the earnings point to a fundamental shift on Wall Street, where traditional profit centers like trading have been winnowed by persistently low interest rates and a raft of regulations passed in the aftermath of the financial crisis. It is still unclear whether that trading activity is permanently gone or whether it will return, albeit, perhaps at a lower volume than in the past.
At an investor conference in June, Marianne Lake, JPMorgan's chief financial officer, obliquely referred to "too much capacity" in the bank's trading divisions, hinting at how a prolonged slowdown in investment banking revenue could lead JPMorgan to reduce compensation or jobs. It was not the first time that the bank had foreshadowed the slowdown that resonated throughout Tuesday's earnings. In May, JPMorgan cautioned that revenue in the second quarter from fixed-income and equities trading would fall by as much as 20 percent.
For JPMorgan, the earnings are the first since Jamie Dimon, the bank's chief executive, announced this month that he has throat cancer. While Mr. Dimon, 58, has assured investors that his condition is curable and has not spread beyond the lymph nodes on the right side of his neck, the news reignited longstanding questions about who might take over from Mr. Dimon.
Mr. Dimon, who has held the dual roles of chief executive and chairman at the bank since 2006, has been atop JPMorgan longer than any other current chief of a major bank, and he holds a larger-than-life role within the bank. Just a day after the announcement of his medical condition, the bank's share price fell 1 percent, even as the broader stock market remained buoyant at near record highs.
JPMorgan's board has worked to reassure investors that it has already developed succession plans. Among the potential successors, according to people briefed on the matter, are Gordon A. Smith, the head of JPMorgan's consumer bank, and Mary C. Erdoes, who runs the asset management business.
The earnings on Tuesday were almost as notable for what was absent: any banner legal settlements. The bank has largely emerged from a turbulent period – a stretch of months when JPMorgan reached a record $13 billion deal in November over its sale of mortgage securities. Still, legal expenses weighed down second-quarter earnings by 13 cents a share.
Despite the second-quarter decline in earnings, Mr. Dimon said on Tuesday, "Toward the end of the second quarter, we saw encouraging signs across our businesses, including an uptick in wholesale utilization, strengthening pipelines in our commercial and business banking segments, and some improvements in markets activity."
Within the investment bank, profit was $2 billion, down 31 percent from the period year earlier. Revenue from fixed income trading dropped by 15 percent to $3.5 billion, driven lower by what JPMorgan described as "historically low levels of volatility and lower client activity across products." Revenue from equity markets also dipped 10 percent, to $1.2 billion, from the period a year earlier.
To help offset those declines, JPMorgan, along with its rivals, have been looking to trim expenses. Reiterating that push in his annual letter to shareholders this April, Mr. Dimon said the bank would "continue to drive down expenses as a percentage of revenue over the years."
JPMorgan has also redoubled its focus on wealth management and private banking business, areas that were largely untouched by the latest round of regulations. Revenue within the private bank rose 5 percent, to $1.6 billion, from the period a year earlier.
The bank also wooed more client assets, bringing the total to $2.5 trillion, up 15 percent from a year earlier.
Another bright spot within the earnings was a 7 percent rise in average total deposits, which increased to about $486 billion. JPMorgan also saw a surge in its business loan originations, which grew 46 percent, to $1.9 billion. Auto loan originations also rose 4 percent, to $7.1 billion. And helping to defray the drops in trading revenue, JPMorgan saw its advisory fees surge by 31 percent from the prior year to $397 million. Revenue from equity underwriting also rose by 4 percent.
JPMorgan emphasized its strength in its commercial banking unit, where average loan balances were $140.8 billion, up 7 percent from a year earlier.
Still, the strength of those businesses could not completely offset the overall decline in mortgage refinancing, which had once been a particularly robust and plentiful source of profit for JPMorgan and its rivals. Rising interest rates and a steady uptick in housing prices helped to erode homeowners' appetite for refinancing.
Mortgage loan originations also took a steep 66 percent dive, to $16.8 billion, from the period a year earlier, while profit in the mortgage banking unit fell to $709 million, down $433 million.
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