JPMorgan Chase earnings beat Wall Street estimates but show almost no growth in core bank lending business

07/14/2011 12:56 pm EST


Jim Jubak

Founder and Editor,

Really good news from JPMorgan Chase’s (JPM) earnings report this morning—if you’re a global investment bank.

Disappointing news, however, if you’re a U.S. bank looking for loan growth.

Overall second-quarter earnings rose 13% from the second quarter of 2010. Earnings per share of $1.27 were 7 cents a share above the Wall Street estimate. Revenue climbed 6.3% from a year earlier to $27.41 billion. That was above the analyst consensus of $25.26 billion.

As in recent quarters, JPMorgan Chase’s bottom line got a boost from a reduction in reserves against potential losses. For example, the bank saw a reduction of $1 billion in credit card reserves in the quarter as fewer credit card holders were delinquent on their accounts. Offsetting those improvements, however, the bank put away an additional $1.4 billion in reserves against litigation in its mortgage business.

But this quarter JPMorgan Chase also saw some real top line growth in some parts of its business. Revenue at the company’s investment bank climbed 16% and that drove profits in that unit up 49%. Fees from underwriting debt issues climbed 24% and from underwriting equity issues 29%. Revenue from fixed income trading climbed 20% from a year earlier and revenue from equity trading was up 18%. The bank had an extraordinary quarter advising on deals with revenue from advisory fees soaring 69%.

All that’s great news for the world’s big investment banks such as Citigroup (C), Goldman Sachs (GS), Bank of America (BAC) and the like. Citigroup is due to report second-quarter results before the open tomorrow, July 15.

But for banks that make the bulk of their revenue from the bread-and-butter activity of making loans, the results from JPMorgan Chase weren’t nearly as positive. Loans on June 30 were up a tad from the total at the end of March, but were still down 1% from the year-ago level on June 30, 2010.

In other words, it’s safe to say that so far the loan business looks pretty much as dismal as it did in the first quarter with banks scratching to find any growth in this key business. Last quarter only a few U.S. banks, such as USBancorp (USB) saw any loan growth at all. JPMorgan’s second quarter report hasn’t broken that pattern.

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