JPMorgan Chase said today that it made $4.8 billion in profits in the second quarter of this year. That was 76 percent more than it made a year earlier, and more than analysts were expecting.
But a big chunk of that came from an accounting move.
The company lowered its loan-loss reserves — the amount of money it sets aside in anticipation that borrowers won't pay back their loans — by $1.5 billion.
Under accounting rules, that money counts towards the firm's profits. (By the same token, increasing loan-loss reserves counts against profits.)
The lower loan-loss reserves reflect more reliable payents from borrowers. Relatively speaking, that's a good sign for the economy. But even though the rate of delinquency is falling, it's still high by historical stanards, the bank said.
Here, in bankspeak, is how the company explained the situation for its real-estate loans:
Although losses for the mortgage and home equity portfolios continued to be extremely high, the current-quarter provision reflected improved delinquency trends and reduced net charge-offs as compared to prior periods.