Better economy, merger boom boosts US bank earnings

New York: 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 Tuesday.

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 $11.9 billion, including a boost from $3 billion that had been set aside as reserves.

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

But revenues for the period fell eight percent to $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 $5.3 billion in the second quarter, up from just $197 million in the year-ago period.

Revenues were $15.4 billion, up 16 percent 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 favorable 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 $2 per share from the prior $1.25.

Shares of JPMorgan edged up 0.1 percent to $158.20 while Goldman rose 1.5 percent to $386.10 in pre-market trading.Meanwhile, US inflation spiked again in June, jumping 5.4 percent over the past 12 months for its biggest gain since August 2008, according to official data released Tuesday.

Compared to May alone, the Consumer Price Index (CPI) surged 0.9 percent, seasonally adjusted, with over one-third of that rise driven by a 10.5 percent gain in used car prices, the Labor Department reported.

The vaccine-fueled reopening of the US economy has caused inflation to accelerate due to supply bottlenecks as well as

dynamics like rental car companies´ struggles to rebuild their fleets and a global shortage of semiconductors that´s hampered auto production.

Energy prices have also rebounded after sinking in the midst of the pandemic shutdowns, with gasoline surging 45.1 percent over the past year, unadjusted, and 2.5 percent in the month, the report said.

Food prices rose a more modest 2.4 percent for the year and 0.9 percent in the month.

But even excluding the more volatile food and energy prices, "core" CPI over the 12 months to June jumped 4.5 percent, unadjusted, the biggest increase since November 1991, the Labor Department said.

Ahead of the report, economists said they expected inflation to start trending down in coming months, but noted that price pressures persist.

The "price gains were widespread as unleashed pent-up demand outstrips diminished supply," said Kathy Bostjancic of Oxford Economics.

"We believe this will be the peak in the annual rate of inflation," she said in an analysis, but "price increases stemming from the reopening of the economy and ongoing supply chain bottlenecks will keep the rate of inflation elevated."