Earnings Take Shine Off Bank Stocks

By Emily Glazer and Peter RudegeairFeaturesDow Jones Newswires

A still-challenging environment around lending and interest rates, along with frustration over Washington gridlock that prompted angry remarks from J.P. Morgan Chase & Co. chief James Dimon, took some of the shine off otherwise solid financial results Friday from three of the biggest U.S. banks.

J.P. Morgan Chase led the way with record profit in the second quarter of $7.03 billion. Even so, executives cut their guidance for lending growth in 2017 as well as for interest income.

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Shares in the bank and other lenders fell in response, reflecting investor worries that economic growth might not be strong enough to fuel further gains in bank shares given their postelection run-up. The KBW Nasdaq Bank index is up about 28% since last November's election, nearly double the performance of the S&P 500 during that time.

On Friday, shares of J.P. Morgan dropped about 1%, while shares in the other two big banks that reported, Wells Fargo & Co. and Citigroup Inc., fell about 1.2% and 0.7%, respectively.

Investor excitement over policy changes that could benefit banks has also cooled amid uncertainty around issues such as a tax-code overhaul or infrastructure spending. Frustration on that front was voiced by Mr. Dimon, who challenged Washington to do more to boost the economy.

In doing so, he struck a tone more downbeat than the hopeful one many bankers adopted after President Trump's election. "It's just unfortunate, but it's hurting us, it's hurting the body politic, it's hurting the average American," Mr. Dimon said of Washington inaction. "We have become one of the most bureaucratic, confusing, litigious societies on the planet. It's almost an embarrassment to be an American citizen traveling around the world and listening to the stupid shit we have to deal with in this country.

"We have to get our act together," he added.

Mr. Dimon's remarks came shortly after the bank said it expected to grow its net interest income by $4 billion this year, down from an earlier projection of $4.5 billion. A big driver of the reduction has been persistent low yields on longer-term bonds, which reflects skepticism about long-term prospects for economic growth and inflation.

Long-term yields are moribund despite four increases in short-term rates by the Federal Reserve since late 2015. That combination weighs on bank profits because it narrows the difference between short- and long-term rates -- a so-called flattening of the yield curve.

Despite such factors, second-quarter results from J.P. Morgan, Wells Fargo, Citigroup and PNC Financial Services Group Inc. beat Wall Street expectations.

Write to Emily Glazer at emily.glazer@wsj.com and Peter Rudegeair at Peter.Rudegeair@wsj.com

(END) Dow Jones Newswires

July 14, 2017 15:31 ET (19:31 GMT)