Leading US banks post big jump in earnings
Analysts cast doubt on more strong gains as higher rates and new capital rules loom
Large US banks have been stand-outs in the early part of the second-quarter earnings season, but analysts are warning of speed bumps ahead.
The major banks have posted big profit increases that bested analyst expectations. They gained from better credit quality, the absence of heavy provisions that had marred prior quarters, and strong investment banking.
That said, loan growth remained anaemic, particularly to consumers, who continue to skimp on spending.
Banks also face tough questions on the implications of higher interest rates and proposed regulations to require higher capital buffers.
Jamie Dimon, the chief executive of JP Morgan Chase, said loan growth remained "soft", citing the "cautious stance" by consumers and businesses.
"However, we continue to see broad-based signs that the US economy is improving, and we are hopeful that, as jobs are added and the confidence builds, the economy will strengthen over time," Dimon said.
JP Morgan posted a 31 per cent jump in profit to US$6.5 billion compared with the year-ago period, a result fuelled by a big jump in investment banking and improved credit quality.
But the bank, the largest in the US by revenue, also prospered from the absence of a US$4.4 billion charge in the year-ago period tied to its losses in the so-called "London whale" trading debacle.
In future quarters, JP Morgan and its rivals would not benefit from cheery comparisons with a one-off event like the whale, said Erik Oja, an analyst at S&P Capital IQ.
Oja also sees little further opportunity for cost-cutting.
JP Morgan was cautious about mortgage banking, warning of a big potential drop in mortgage refinancing if interest rates continue to rise.
Mortgage banking was also a weak point for Bank of America, at which losses in consumer real estate deepened to US$937 million from US$744 million.
But the bank's profit rose, in part because of deep cost cuts and the absence of large charges that have plagued recent quarters, cheered the market. It outperformed on commercial loans, which grew 20 per cent.
Citigroup scored from big gains in equity and fixed-income trading and from solid revenues in emerging markets. But consumer loans fell 7 per cent.
Investment banks Goldman Sachs and Morgan Stanley benefited from big gains in equity and debt underwriting.