JPMorgan profit rises to record, fueled by investment banking

By Niket Nishant and Nupur Anand

(Reuters) -JPMorgan Chase beat estimates for second-quarter profit on Friday as a resurgence in dealmaking and strong capital markets fueled record results.

More companies are seeking to raise funds through debt or equity offerings and striking takeover deals as they gain confidence in the U.S. economic outlook, helping to boost Wall Street banks' income.

Investment banking revenue grew 46% to $2.5 billion, compared with a low base a year earlier. The gains exceeded the company's earlier predictions.

The Wall Street operations even propelled overall profits to an all-time high. JPMorgan also benefited from a one-time accounting gains on transactions related to payments network Visa.

Despite the strong results, CEO Jamie Dimon maintained caution about the economic outlook.

"While market valuations and credit spreads seem to reflect a rather benign economic outlook, we continue to be vigilant about potential tail risks," Dimon said in a statement, adding that the risks included a changing geopolitical situation, which remains the most dangerous since World War II.

Inflation and interest rates may stay higher than market expectations due to threats like large fiscal deficits and restructuring of trade, he added.

Dimon, who typically speaks on conference calls with journalists and analysts about earnings, was absent on Friday because of travel commitments, the company said. The departure was a one-off, it said.

Commercial and investment banking revenue during the first half rose to $35.5 billion, the highest ever, the bank said.

Earlier this year, JPMorgan merged its commercial, corporate and investment banking businesses under a larger global banking division.

"We are encouraged by some of the economic trends that underpinned client activity in the second quarter and we remain cautiously optimistic as we head into the second half of the year," Jennifer Piepszak and Troy Rohrbaugh, co-CEOs of the commercial and investment bank, said in a post-earnings memo seen by Reuters.

The pipeline for mergers, acquisitions and equity capital markets was robust, but the bank was cautious about debt capital market activity in the second half of the year, Chief Financial Officer Jeremy Barnum said.

The IPO market is also yet to bounce back, despite a fledgling recovery this year, he added.

"A lot of the private capital that was raised a couple of years ago was raised at pretty high valuations. So in some cases ... (companies looking for) IPOs could be looking at down rounds."

TRADING BOOST

Trading was another bright spot in the quarter, fetching 10% higher revenue than last year. Revenue from fixed-income trading jumped 5% while equities saw a 21% jump.

"JPMorgan's results showed us two things: First, investment banking and equities trading did really well compared to last year," Opimas CEO Octavio Marenzi wrote in a note.

"Secondly, we see Main Street banking beginning to sputter," but the bank has navigated a challenging interest rate environment very well, he added.

Elevated interest rates continued to benefit lending, with net interest income (NII) - the difference between what the bank earns on loans and pays out on deposits - rising 4% to $22.9 billion.

The largest U.S. lender's profit rose 25% to $18.15 billion, or $6.12 per share, for the three months ended June 30, compared with $14.47 billion, or $4.75 per share, a year earlier.

It had an accounting gain of about $8 billion from a share exchange deal with Visa. Excluding the Visa deal, net income was $13.1 billion.

The bank earned $4.26 per share, stripping out all one-time costs, compared with expectations of $4.19 per share, according to LSEG.

Lending has remained healthy even as banks compete for deposits and face pressure to shell out more to depositors to store their money.

JPMorgan set aside $3.1 billion in provisions for credit losses, 62% higher than the first quarter, to prepare for deteriorating loans.

Still, U.S. consumer finances remained broadly healthy, Barnum said.

The bank's shares slid 0.7%. They have gained 21% so far this year, but have underperformed rivals Bank of America, Citigroup and Wells Fargo.

JPMorgan's earnings trends were generally solid, "but the higher core costs and provisions could weigh a bit near-term on the shares, especially considering how strong the stock has already been recently," Scott Siefers, an analyst at Piper Sandler, wrote in a note.

Investors are also focused on succession planning at JPMorgan. The bank's board has identified several candidates to succeed Dimon, who is expected to step down in less than five years.

The contenders include Piepszak and Rohrbaugh along with Marianne Lake, who leads consumer and community banking, and Mary Erdoes, the head of asset and wealth management.

JPMorgan's rival Wells Fargo missed analysts' estimates for interest income on Friday, due to higher deposit costs amid intense competition for customers' money.

(Reporting by Niket Nishant in Bengaluru and Nupur Anand in New York, editing by Lananh Nguyen, Anil D'Silva and Nick Zieminski)