On the spot

JP Morgan is running fast just to stand still. The mega-bank run by Jamie Dimon grew lending, cut costs and rejigged other businesses in this year's second quarter. Net income rose five per cent from the same period last year to an estimates-beating $6.3 billion. Not bad - but not as good as it may sound.

First, the bank relied on a few tax breaks and accounting funnies to exceed analysts' expectations. Strip those out and net income would have dropped below $6 billion, just missing analyst estimates.

Second, and more irritating for shareholders, good news had relatively little effect. The bank unloaded more than $100 billion of deposits it was holding for other financial institutions. They had dragged down earnings, and Dimon promised in February to get rid of them. Costs also fell six per cent from last year's second quarter, in part due to trimming that and other businesses like commodities.

The bank is also making better use of assets on its balance sheet. Core lending shot up 12 per cent from the same period last year, with mortgages and consumer loans rising 19 per cent.

Yet net interest income remained flat, and the net interest margin increased by only two-hundredths of a percentage point. Factors like changes in the size of the bank's securities portfolio were at least partly responsible. But the numbers suggest JP Morgan might be following US Bancorp's lead in making some loans that yield far less than its return on equity. Finance chief Marianne Lake tried at least to address that, saying "we price our mortgages above our cost of capital".

After all that, though, annualised return on equity remains 11 per cent. That typically beats the figure for all the bank's major rivals except Wells Fargo, which managed 12.7 per cent in its second quarter. But it's the same as JP Morgan churned out in last year's second quarter and the three months through March.

At least Dimon isn't pushing employees to pursue, say, riskier loans that pay more now but might prove costly down the road. It's looking, though, as if interest-rate increases might be the only thing that can fuel significantly stronger performance. And they could be a long way off.