JPMorgan, other banks are nothing more than utilities

JPMorgan is struggling to earn its keep. The lender run by Jamie Dimon cranked out a better-than-expected $6.2 billion in second-quarter profit, it said on Thursday. That came courtesy of jumps in lending and trading revenue as well as falling costs. The trouble is, even with these top-line improvements the company's annualized return on equity was just 10 percent in the quarter. That barely covers the firm's cost of capital. The utility-like result from JPMorgan is nonetheless likely to be one of the best of the Wall Street bunch this earnings season. Only Wells Fargo and U.S. Bancorp , both due to report on Friday, will probably perform better. The likes of Citigroup , Morgan Stanley and Bank of America look set to fall short of the 10 percent ROE hurdle yet again. In this kind of environment, JPMorgan's ability to just about match its cost of capital grants it more leeway than most rivals to invest in its business. Dimon has done this well. His bank has some of the most modern branches and ATMs, it is rapidly shifting customers to its more efficient mobile and online banking platforms, and it has developed its own cards payment network, Chase Pay. More from Breakingviews : Nintendo's augmented shares reflect new reality At the same time, the $240 billion bank's efficiency ratio, which tracks the proportion of revenue spent on operating costs, came down to just 56 percent in the three months to June. That's far better than the average of 63 percent or so in recent quarters for banks covered by Credit Suisse analysts. What's really needed all along Wall Street is more business. JPMorgan got some last quarter. Fixed income trading revenue jumped more than a third to $4 billion – admittedly compared with a weak second quarter last year – while core loans rose 16 percent. But it wasn't enough to provide much of a boost to the bottom line. That's because persistently low interest rates and rising capital requirements take their toll. These trends force banks to run faster and faster just to stand still. It's an even more serious concern for those stuck with single-digit returns than for JPMorgan. Absent a bigger upswing in trading revenue or rate hikes from the Federal Reserve, the industry has little choice but to keep chipping away at expenses. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

Jamie Dimon, chairman, president, and chief executive officer of JPMorgan Chase & Co

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JPMorgan is struggling to earn its keep. The lender run by Jamie Dimon cranked out a better-than-expected $6.2 billion in second-quarter profit, it said on Thursday. That came courtesy of jumps in lending and trading revenue as well as falling costs. The trouble is, even with these top-line improvements the company's annualized return on equity was just 10 percent in the quarter. That barely covers the firm's cost of capital.