JPMorgan’s Profit Surged 67% in Second Quarter on Strength of US Consumers, First Republic Purchase

JPMorgan Chase's second-quarter profit soared 67% in the second quarter, handily beating Wall Street expectations, with a $1.8 billion gain coming from the bank's rescue of First Republic.

“The U.S. economy continues to be resilient. Consumer balance
sheets remain healthy, and consumers are spending, albeit a little more slowly," Chairman and CEO Jamie Dimon said in announcing the results. He said job growth remains strong, though labor markets have softened a bit.

Dimon warned of "salient risks in the immediate view." He flagged dwindling consumer savings, the Ukraine war and the Federal Reserve's so-called quantitative tightening. During the financial crisis and pandemic, the Fed juiced the economy by buying loans and bonds from Wall Street banks. It's now reversing course by shrinking its holdings, called quantitative tightening.

The nation's largest bank by assets, reported $41.3 billion in revenue for the quarter ended June 30, compared to $30.7 billion during the same quarter last year.

It said net income rose to $14.5 billion, a 67% jump from more than $8.6 billion during the same quarter last year.

Earnings per share came to $4.75, far in excess of analysts' expectations of $3.62 a share, according to estimates compiled by Morningstar.

JPMorgan's stock rose 0.35% in in afternoon trading.

Investors are watching to see how JPMorgan integrated its May purchase of the deposits and most of the assets of First Republic Bank, which halted a bank run that threatened to metastasize into a full blown financial crisis. Dimon said the bank booked an after-tax gain of $1.8 billion on the First Republic deal, as well as after-tax securities losses of $700 million.

Provisions for credit losses rose sharply, to $2.9 billion in the quarter from $1.1 billion in the year ago period. The credit losses were largely due to the First Republic deal, reflecting net  charge offs of $1.4 billion and increased reserves of $326 million. Excluding First Republic, the credit loss provision was $1.7 billion.

The Federal Deposit Insurance Corp. which was appointed as First Republic’s receiver, provided $50 billion in financing for the deal and will share in any losses on the bank’s loans.

Client retention has been strong since the acquisition, with $6 billion in net deposit inflows. Some 21 First Republic branches remain with the FDIC, with 63 being evaluated for conversion to JPM branches or consolidation.

The bank said about 5,100 former First Republic employees joined JPMorgan as of July 2, with the integration expected to be completed in mid-2024.

The rescue underscores how JPMorgan, under Dimon, has become a crucial backstop in the U.S. financial system, despite concerns over the size and power of its largest banks.

Dimon is the last remaining big bank CEO to have weathered the 2008-09 financial crisis. His reputation as a lender of last resort has prompted admirers to occasionally float his name as a presidential contender. Dimon has said that he is neither qualified nor interested in running.

JPMorgan has been entangled in the sex trafficking scandal surrounding the late Jeffrey Epstein. Last month, A U.S. judge granted preliminary approval to JP Morgan’s $290 million  settlement with women victims who said the financier had abused them.  Epstein was a JPMorgan client from 1998 through 2013.

JPMorgan has said it regrets its association with Epstein.

Last month, the bank sailed through the Federal Reserve’s annual stress tests, which measure capital adequacy, as did the other major U.S. banks. It announced a five cent increase in its dividend, to $1.05, beginning in the third quarter.

JP Morgan shares outperformed in the second quarter, returning 12.49%, compared to 8.30% for the S&P 500 and a negative 1.14% for the Invesco KBW Bank ETF, which holds large bank stocks.