NEW YORK (AFP) – Large U.S. banks have been stand-outs in the early part of the second-quarter earnings season, but analysts are warning of speed bumps ahead.
The major banks have posted big profit increases that bested analyst expectations.
They gained from better credit quality, the absence of heavy provisions that had marred prior quarters, and strong investment banking.
That said, loan growth remained anemic, particularly to consumers, who continue to skimp on spending.
Banks also face tough questions on the implications of higher interest rates and new proposed regulations to require higher capital buffers. And some analysts are skeptical the recent jump in profits is sustainable.
Jamie Dimon, chief executive of JPMorgan Chase, said loan growth remains “soft,” citing the “cautious stance” by consumers and businesses.
“However, we continue to see broad-based signs that the U.S. economy is improving and we are hopeful that, as jobs are added and the confidence builds, the U.S. economy will strengthen over time,” Dimon said.
JPMorgan posted a 31 percent increase in profits to $6.5 billion compared with the year-ago period, a result fueled by a big jump in investment banking and improved credit quality.
But the bank, the largest in the U.S. by revenue, also prospered from the absence of a $4.4 billion charge in the year-ago period tied to its losses in the so-called “London whale” trading debacle.
In future quarters, JPMorgan and its peers will not benefit from cheery comparisons with a one-off event like the whale, said Erik Oja, an analyst at S&P Capital IQ. Oja also sees little further opportunity for cost-cutting.
“I don’t think it’s going to be sustainable,” Oja said of JPMorgan’s robust second-quarter performance.
JPMorgan was also among the most cautious about mortgage banking, warning of a big potential drop in mortgage refinancings if interest rates continue to rise.
Mortgage banking was also a weak point for Bank of America, which saw losses in consumer real estate deepen to $937 million from $744 million.
But Bank of America’s profit rise cheered the market, in part because of deep cost cuts and the absence of large charges that have plagued recent quarters.
Bank of America, which suffered badly during the financial crisis, also outperformed on commercial loans, which surged 20 percent to $380.5 billion.
“We must keep improving, but with the consumer recovering and businesses strong, we have lots of opportunity ahead,” said chief executive Bruce Thompson.
Citigroup, another bare-survivor of the crisis, scored from big gains in equity and fixed-income trading and from solid revenues in emerging markets.