J.P. Morgan Reports Strong Earnings, Helped by Lending -- 5th Update

J.P. Morgan Chase & Co. said its second-quarter profit rose 13% as a boost from lending alongside record profits in some businesses offset weaker trading results.

Shares slipped 1.7% premarket even as earnings and revenue beat the expectations of Wall Street analysts.

The bank reported a profit of $7.03 billion, or $1.82 a share. That compares with a profit of $6.2 billion, or $1.55 a share, in the same period of 2016. Analysts polled by Thomson Reuters had expected earnings of $1.58 a share.

The bank had a legal benefit of $406 million after taxes related to a settlement involving Washington Mutual, which it bought during the financial crisis. Although firmwide expense added up to $61 million, the settlement benefit helped boost earnings per share by 11 cents. Absent that, the bank would have posted $1.71 a share in earnings.

Revenue rose 4.7% to $26.41 billion. Analysts had expected $24.96 billion.

On a call with media, Chief Executive James Dimon reiterated several times the importance of changing U.S. policy, such as infrastructure reform, regulatory reform, corporate tax reform and education reform.

"A focus on policy is good for all Americans," he said. He compared the U.S. with other countries he has visited recently, adding that generally "business doing well is good for the citizens of the country," particularly in regards to jobs and wages.

Finance chief Marianne Lake pointed to the record profit in commercial banking and wealth and asset management units but said a lack of volatility and activity led to weaker trading results.

The boost from still low -- but rising -- interest rates will also likely be a major focus, as an increase in rates can help the profitability of big consumer lenders like J.P. Morgan. While rates have risen as the Federal Reserve has increased its short-term target, the difference between short- and long-term rates, known as the yield curve, has flattened. It is better for banks when the yield curve is steeper.

J.P. Morgan's trading revenue decreased 14% to $4.8 billion from $5.56 billion a year earlier, hurt by a 19% falloff in fixed-income trading compared with the prior-year period. Ms. Lake said it is too early to comment on July trading.

J.P. Morgan extended $23.9 billion in mortgages in the quarter, a decrease of 4.4% from the $25 billion the bank extended in the second quarter a year earlier. Revenue in its mortgage division, one of the largest in the U.S. by volume, was $1.43 billion, down 26% from the $1.92 billion it reported in the year-earlier period.

Overall profit at the corporate and investment bank was $2.71 billion, an 8.7% increase from $2.49 billion in the same period last year. In the consumer bank, profits were $2.22 billion compared with $2.66 billion in the second quarter a year ago. J.P. Morgan's commercial bank earned $902 million, a 30% increase from the $696 million it earned in the year-ago quarter, and the bank's asset-management unit reported profits of $624 million, up 20% from $521 million in the second quarter of 2016.

J.P. Morgan set aside $1.22 billion in the second quarter to cover loans that could potentially turn bad in the future. That compares with $1.4 billion in the second quarter of 2016 and $1.32 billion in the first quarter of 2017. The bank lost $1.2 billion to loan defaults, or 0.56% of its overall portfolio, compared with a 0.79% charge-off rate in the first quarter of 2017.

Costs increased 6.4% to $14.51 billion from $13.64 billion a year earlier. Executives said in a February investor presentation that expenses are expected to rise in 2017 to fund investments and growth.

Return on equity, a measure of profitability, was 12% in the second quarter compared with 10% a year earlier.

The bank's provision for credit losses fell to $1.22 billion from $1.4 billion a year earlier.

Since the election, J.P. Morgan's shares are up 33% alongside a 29% jump in the KBW Nasdaq index of bank stocks.

After a volatile 2016, large U.S. banks' stocks had come roaring back since the election, especially as the Trump administration nominated people with deep Wall Street experience to key posts. But with no action yet in key areas like tax, bank stocks have struggled to gain much further ground.

Write to Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

July 14, 2017 08:57 ET (12:57 GMT)