JPMorgan Chase posted a 31% increase in second-quarter earnings on Friday after underwriting income jumped and bond trading revenue rose.
Since mid-May, U.S. bond markets have suffered their worst two-month selloff in a decade, as the Federal Reserve has said it is planning to taper its massive bond purchases, known as quantitative easing.
The bond market weakness puts Chief Executive Jamie Dimon in a tough spot. Mortgage rates are rising, which could slash mortgage lending volume by 30% to 40%, said Chief Financial Officer Marianne Lake on a call with investors. But U.S. economic growth is still subdued, meaning demand for most other loans is hardly surging.
Lake also confirmed that 'there could be some acceleration' in previously announced cost-cutting targets, depending on market conditions.
'It's a difficult environment', said Gary Townsend, co-founder of hedge fund Hill-Townsend Capital, which invests in financial stocks. 'The bank is not doing as well as it can in a better interest-rate environment'.
Finally, Bloomberg reports that Wells Fargo said second-quarter profit climbed 19% as the bank clamped down on expenses. Net income advanced to a record $5.52bn.
'Expenses are probably between $500m and $1bn too high', Marty Mosby, an analyst at Guggenheim Securities, said in an interview before results were disclosed. 'That’s a cushion they are whittling down'.
Expense reductions could come in employee benefits, as well as foreclosures, regulatory settlements, and mortgage servicing and repurchases.
image: © Tax Credits