Mired in low rates, JPMorgan buoys itself with loan growth

Thu Jul 14, 2016 12:37pm EDT
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By David Henry and Sweta Singh

(Reuters) - JPMorgan Chase & Co (JPM.N: Quote) is lending more and keeping a lid on expenses to combat the scourge of low interest rates, allowing management to stick to financial goals for the year.

JPMorgan, the largest U.S. bank by assets, beat subdued expectations, reporting a 1 percent slide in second-quarter earnings on Thursday, in the face of historically low rates, volatile markets and questions about its future in one of Europe's biggest economies.

Chief Financial Officer Marianne Lake struck a resilient tone when discussing results, saying JPMorgan would be at the higher end of management's forecast for 2016 loan growth and was also on track to reach a cost-cutting target.

During the second quarter, JPMorgan's average book of core loans – those related to ongoing businesses it plans to maintain – grew 16 percent, with particular expansion in mortgages and commercial real estate. Even as deposits grew, the portion it lent out also rose to 66 percent, compared with 61 percent a year ago and 64 percent in the prior quarter.

The bank's share price climbed 2 percent in afternoon trading to $64.42 after it reported results.

"We had broad-based demand for loans pretty much across categories," Lake said on a conference call with journalists. "I would say that that speaks well for the U.S. economy."

Growing the loan book is especially important as JPMorgan, like other banks, faces extreme challenges in earning money on idle deposits because of very low rates. Wells Fargo & Co (WFC.N: Quote) and Citigroup Inc (C.N: Quote) the third- and fourth-biggest U.S. banks, report results on Friday, providing more insight into the health of the industry.

The difference, or spread, between 10-year and two-year U.S. Treasuries, an indicator of how much profit banks can make from loans, dropped to 75 basis points on Friday, its lowest level since late 2007.   Continued...

A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012.  REUTERS/Dylan Martinez/File Photo