JPMorgan Chase & Co., who contributed upwards of $695,132 to president Obama’s 2008 campaign (more than three times the $228,107 McCain received*), reported Thursday that it earned $5.4 billion, or $1.27 per share in the three months ending in June.
The company saw their income rise by 13 percent as the bank collected higher fees from equity and debt underwriting in its investment banking business ("underwriting" is when a financial institution brings newly issued securities to a group of public or private investors).
When a bank underwrites a deal with their client they agree to purchase newly issued securities from the client with the intention of selling them for a profit. The client then pays the bank a premium in order to obtain capital without searching for many smaller buyers. In return for this premium, the bank assumes the risk of holding the newly issued securities, which could lose value and result in a loss.
Profits from JPMorgan’s investment banking, the process by which they assist individuals, corporations and governments in raising capital by underwriting and acting as the client's agent in the issuance of securities, jumped 49 percent, to $2.1 billion, as the bank collected higher fees.
The bank set aside $2.6 billion for compensation to its investment bankers, down from $2.9 billion in the same period last year. That was above the $1.22 per share that analysts surveyed by FactSet had forecast. JPMorgan earned $4.8 billion, or $1.09 per share, in the same period a year ago.
However, despite rising capital generated from higher fees, their lending business staggered in the second quarter. “Despite low interest rates, the bank lost $454 million in its auto and mortgage loan operations, compared with income of $364 million in the prior year,” The Associated Press reports.
But should this come as a surprise? If you raise your debt fees, why would you expect the same customer base to think about borrowing for an auto loan or a mortgage?
“Even in credit cards, a bright spot in recent quarters, JPMorgan's customers weren't spending as much, reflecting a lack of confidence in the economy. The total amount of credit card debt held by JPMorgan fell 12 percent compared with a year ago as its customers spent less. JPMorgan reduced its loan loss reserves by $1 billion as more people paid their bills on time,” AP reports.
JPMorgan's stock rose 2 percent to $40.57 in pre-market trading Thursday.
It is also important to note that the profit they posted was generated primarily through fee increases and debt collection. Not to say that profit is bad. Far from it. The problem is how they made their profit. They posted losses in every category that involved offering goods and services but made large gains in fees and debts.
According to their own reports, customers aren't investing in loans or using their credit cards. Why? It may be for a host of reasons (such as the ailing housing market or low consumer confidence). It could also be because their core market is too busy paying of the fee increases. Either way, the conclusion is an unhappy one: the customer, who must pay the fee increase, will not be making any sort of return on their "investment" in the bailouts.
This begs the question, “What was that $25 billion for?” Was it for establishing lines of credit or offering loans? In a report written in 2008, the claim was made that several of the recipients of the bailouts would take the money and "just hoard it to protect themselves." The fact that their profits have been generated primarily through fee increases--as opposed to the sale of a genuine good--makes one begin to wonder whether or not the aforementioned quote was an unfair assessment.
*As clearly stated on Openseecrets.org website, “The organizations themselves did not donate, rather the money came from the organization's PAC, its individual members or employees or owners, and those individuals' immediate families. Organization totals include subsidiaries and affiliates.”