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JPMorgan stock soars, but other big banks fall on reserves build

JPMorgan stock soars, but other big banks fall on reserves build

JPMorgan (NYSE: JPM) stock price extended the upside momentum after reporting positive earnings for the second quarter despite building a credit reserve of $8.81bn. The company earned a profit of $1.38 per share for the second quarter, beating the consensus estimate by a large margin of $0.24 per share.   

The largest US bank attributes higher than expected profit to its revenue growth potential. It’s corporate and investment banking revenue of $16.4bn grew 64% sequentially and 66% year over year. The robust growth from corporate and investment banking helped it in offsetting lower revenue from other segments.

“We earned $4.7B of net income in the second quarter despite building $8.9B of credit reserves because we generated our highest quarterly revenue ever, which demonstrates the benefit of our diversified global business model,” CEO Jamie Dimon said.

JPMorgan stock price soared following the earnings report, extending a five-day rally to over 6%. Although JPMorgan stock is down almost 30% year to date, JPM stock has still outperformed the rest of the largest banks.

Banks’ stock price performance comparison.

Citi Group (NYSE: C) stock price dropped more than 2% after reporting second-quarter results. Citi also topped analyst’s revenue and earnings expectations by $710 million and $0.10 per share, respectively. Its provision for credit losses came in at $5.6bn compared to $7.16bn.  

Meanwhile, Wells Fargo (NYSE: WFC) remained the laggard among the top banks. Wells Fargo stock price slid more than 4.5% following the earnings announcement. The fourth-largest US bank has reported the first quarterly loss since 2008.

It has also slashed dividends by 80% and inked a plan of making big cuts in expenses to deal with the uncertain environment. Its credit loss reserve stood around $8.4B in the second quarter.

“Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter,” said Wells Fargo CEO Charlie Scharf.

Overall, the banks are not in an ideal position to generate big profits in the short-term amid credit loss. Even challenger banks have been facing the negative impact of the pandemic.

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