Better economy, merger boom boosts US bank earnings

rofits at Goldman Sachs leaped on a merger boom, while JPMorgan Chase’s results were boosted by the halo effect on loan quality from an improving macroeconomy, according to results released today. — Reuters pic
rofits at Goldman Sachs leaped on a merger boom, while JPMorgan Chase’s results were boosted by the halo effect on loan quality from an improving macroeconomy, according to results released today. — Reuters pic

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NEW YORK, July 13 — Profits at Goldman Sachs leaped on a merger boom, while JPMorgan Chase’s results were boosted by the halo effect on loan quality from an improving macroeconomy, according to results released today.

The two financial heavyweights both reported soaring second-quarter profits compared with the year-ago period when large banks set aside massive provisions in case clients defaulted amid the coronavirus downturn.

But vaccines for Covid-19 and the gradual reopening of the economy have made those days seem long ago.

“Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve,” said Chief Executive Jamie Dimon.

The biggest US bank by assets, JPMorgan kicked off the earnings season for the sector, reporting that profits more than doubled to US$11.9 billion (RM49.8 billion) , including a boost from US$3 billion that had been set aside as reserves.

JPMorgan had budgeted US$8.9 billion for bad loans in the year-ago period, but it reported just US$734 million in charge-offs for bad loans in the second quarter.

But revenues for the period fell eight per cent to US$30.5 billion, as the bank’s trading business saw much less activity compared with the year-ago level.

At Goldman, profits came in at US$5.3 billion in the second quarter, up from just US$197 million in the year-ago period.

Revenues were US$15.4 billion, up 16 per cent from the year-ago period and the second highest quarterly revenues in the firm’s history after the first quarter of 2021.

“Our second quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities,” said Chief Executive David Solomon, who said the firm would work to support clients who “still face challenges in overcoming the pandemic.”

Goldman’s results reflected a jump in financial advisory revenues due to a rise in completed mergers and acquisition transactions. The firm’s backlog of additional deals also “increased significantly compared with the end of 2020,” Goldman said.

However, Goldman also saw a steep drop in markets revenue on lower volatility compared with the 2020 period. 

But as with JPMorgan, Goldman’s results were lifted by reserve releases and a favourable comparison from the year-ago period when Goldman also established hefty provisions for bad loans.

Last year’s results were also dented by legal and regulatory costs that were more than 10 times the sum in 2021 period.

Besides announcing results, Goldman announced a boost in its quarterly dividend to US$2 per share from the prior US$1.25.

Shares of JPMorgan edged up 0.1 per cent to US$158.20 while Goldman rose 1.5 per cent to US$386.10 in pre-market trading. — AFP

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