JP Morgan leads US bank earnings with 67% profit surge on higher interest income

US lender's net income surged to $14.5bn in three months to end of June

JP Morgan's revenue soared 34.4 per cent to $41.3 billion in the second quarter. Reuters

JP Morgan, the largest bank in the US, said its second-quarter net profit surged 67 per cent, boosted by an increase in income triggered by rising interest rates.

Net profit surged to $14.5 billion in the three months to the end of June, compared with the same period a year earlier, the lender said on Friday.

The stellar results beat analysts' net profit estimates of $11.9 billion for the quarter, according to data compiled by Bloomberg. Excluding the takeover of First Republic Bank, net profit was up 40 per cent.

Revenue in the second quarter soared to $41.3 billion, an increase of more than 34 per cent from the same period a year earlier, while net interest income jumped 44 per cent to $21.9 billion.

Excluding the First Republic transaction, net interest income was up 38 per cent.

“We reported another quarter of strong results … almost all of our lines of business saw continued growth in the quarter,” said Jamie Dimon, chairman and chief executive of the bank.

JP Morgan’s stock, which has jumped 37.84 per cent in the past 12 months, was trading 2.77 per cent higher at $153 a share in pre-market trading on Friday. It closed at $148.87 on Thursday.

The takeover of First Republic in the last quarter added nearly $203 billion in loans and securities as well as $92 billion in deposits to JP Morgan.

The New York-based lender said its net income attributable to First Republic was $2.4 billion in the April-June period. This included a bargain purchase gain of $2.7 billion and a provision for credit losses of $1.2 billion to establish a reserve for the acquired First Republic lending portfolio.

“Even after the First Republic transaction, we maintained an extraordinarily strong CET1 (Common Equity Tier 1) capital ratio of 13.8 per cent and had $1.4 trillion in cash and marketable securities,” Mr Dimon said.

CET1 is a key measure of a bank's capital strength.

JP Morgan said it raised $1.2 trillion in capital in the first half of this year for businesses, governments and the US consumers.

The US Federal Reserve increased its benchmark rate for the 10th consecutive time in May to bring inflation down to its target range of 2 per cent after prices hit a four-decade high of 9.1 per cent in June of last year.

It has raised rates aggressively by a combined 500 basis points over the past 16 months, their highest since 2007, shortly before the start of the 2008 global financial crisis.

Earlier this month, the Fed hit pause on raising interest rates for the first time since it started its monetary tightening cycle in March 2022, to assess the effect on the economy. However, it signalled it would resume raising rates again this year if needed. Its next meeting will be held on July 25 and 26.

Separately, on Friday the US bank Wells Fargo reported a 57.1 per cent yearly surge in its second quarter net profit as the lender benefitted from higher interest rates.

Net profit in the June quarter jumped to more than $4.9 billion while revenue increased 20.4 per cent on an annual basis to more than $20.5 billion.

“We reported solid results in the second quarter … our strong net interest income continued to benefit from higher interest rates and we remained focused on controlling expenses,” the bank’s chief executive Charlie Scharf said.

The bank posted a $949 million increase in the allowance for credit losses, primarily for commercial property office loans, as well as for higher credit card loan balances, it said in a statement.

“While we haven’t seen significant losses in our office portfolio to date, we are reserving for the weakness that we expect to play out in that market over time,” Mr Scharf said.

The higher profits came despite the California-headquartered bank posting a $1.7 billion provision for credit losses. It was up from $580 million a year ago and $1.2 billion in the March quarter.

Wells Fargo was trading 3.71 per cent higher in pre-market trading at $45.33 a share.

Citigroup was another big bank declaring results on Friday morning. The bank’s shares rose 1.61 per cent to $48.45 in pre-market trading on Friday despite it posting an annual drop in second quarter net profit and revenue.

The New York-based bank reported a net income of $2.9 billion, down 36 per cent year-on-year, while revenue dropped 1 per cent on an annual basis to more than $19.4 billion. However, sales topped the analysts’ expectations of $19.2 billion.

“Amid a challenging macroeconomic backdrop, we continued to see the benefits of our diversified business model and strong balance sheet,” the bank’s chief executive Jane Fraser said.

“Markets revenues were down from a strong second quarter last year, as clients stood on the sidelines, starting in April, while the US debt limit played out.

“In banking, the long-awaited rebound in investment banking has yet to materialise, making for a disappointing quarter."

Boosted by strong loan growth, the lender’s revenue from personal banking and wealth management jumped 6 per cent in the June quarter to $6.4 billion.

The bank said it returned $2 billion to its shareholders through common dividends and share buy-backs in the last quarter.

Its operating expenses increased 9 per cent to $13.6 billion driven by investments in risk and control, business-led and enterprise-led investments, volume growth and macro factors, including inflation and severance.