JPMorgan Q2 earnings beat as loan loss reserve cut

JPMorgan Chase & Co posted better-than-expected quarterly earnings on Thursday as it wrote off fewer bad loans, but its shares edged lower as investors fretted about management's sober assessment of the economy.
Much of JPMorgan's gains in the quarter came from areas that cannot be a stable source of income in the future, such as reducing the amount of money set aside to cover bad loans. And in some areas, including prime mortgages, more loans stopped performing, boding poorly for Citigroup Inc and Bank of America Corp, which report earnings on Friday.
JPMorgan's trading revenue was weaker than last year but better than expected, which might be a positive sign for rivals Goldman Sachs and Morgan Stanley, which report next week.
"The results are just OK — there's a little less than meets the eye here," said Doug Kass, president of hedge fund Seabreeze Partners Management. Kass said he is trading out of JPMorgan after the results.
The bank's loan book continued to shrink, signaling that it is hesitant to take new credit risk now. It said it cannot estimate how financial reform legislation will affect its results, a key piece of information investors were looking for.
And although Chief Executive Jamie Dimon said in the first quarter that the U.S. economic recovery could be solid, he sounded more pessimistic on Thursday.
"It is too early to say how much improvement we will see from here" in the bank's consumer lending businesses, Dimon said in a statement, adding that returns there are "still unacceptable."
Later, Dimon told investors in a conference call, "We don't know what's going to happen to home prices, and we don't think anyone knows."
JPMorgan shares fell 1.8% in morning trading to $39.61, while the KBW Banks Index fell 2.4%.
The bank's second-quarter earnings jumped to $4.8 bln, or $1.09 a share, from $2.7 bln, or 28 cents a share, in the year-earlier period.
Excluding a benefit from lower loss reserves, earnings beat analysts' average forecast of 67 cents a share, according to Thomson Reuters.