JPMorgan Chase said Thursday that second-quarter profits fell as the bank set up reserves for bad loans at $ 428 million and suspended stock purchases.
The actions reflect the cautious stance of chairman and CEO Jamie Dimon.
“The U.S. economy continues to grow and both the labor market and consumer spending, and their ability to spend, remain healthy,” he said in the statement.
“But geopolitical tension, high inflation, declining consumer confidence, uncertainty about how high rates should go and the quantitative tightening never seen before and its effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy, and it is very likely that food prices will have negative consequences for the world economy at some point, “he warned.
With these prospects, the bank has chosen to “temporarily” suspend the repurchase of shares to help it meet regulatory capital requirements, a prospect feared by analysts earlier this year. Last month, the bank was forced to keep its dividend unchanged as rivals increased their payments.
The bank’s shares fell 2.5% in pre-market trading.
This is what the company reported compared to what Wall Street expected, according to a survey by Refinitiv analysts:
- Earnings per share: $ 2.76 versus the expected $ 2.88
- Managed revenue: $ 31.6 billion compared to projected $ 31.95 billion
Earnings were down 28% year-over-year to $ 8.65 billion, or $ 2.76 per share, driven largely by the creation of reserves, New York-based JPMorgan said in a statement. communiqué. A year ago, the bank benefited from a $ 3 billion reserve release.
Managed revenues rose 1% to $ 31.6 billion, helped by the backwind of higher interest rates, but were still below analysts ’expectations, according to a Refinitiv survey.
JPMorgan, the largest U.S. asset bank, is looking for clues as to how the banking sector has fared during a quarter marked by conflicting trends. On the one hand, unemployment levels remained low, so consumers and businesses should have little difficulty repaying loans. Rising interest rates and the growth of lending make banks’ main lending activity more profitable. And the volatility of financial markets has been an advantage for fixed income traders.
But analysts have begun to cut industry earnings estimates amid concerns about an impending recession, and most large bank shares have plunged to a 52-week low in recent weeks. Revenues from capital markets and mortgage activities have fallen sharply, and companies could reveal further declines in securities amid the sharp fall in financial assets.
It is important to note that a key wind that the industry had a year ago: reserve releases, as loans performed better than expected, has begun to reverse as banks are forced to set aside money for possible defaults as the risk of recession increases.
In April, JPMorgan was the first of the banks to start allocating funds for loan losses, reserving a $ 902 million charge to create credit reserves during the quarter. This aligns with the more prudent perspective Dimon has expressed. In early June he warned that an economic “hurricane” was underway.
Given these perspectives, banking analysts may wonder if management can adjust lower expenses in response to the business environment.
One of the winds against the company is rising US rates. JPMorgan told the firm’s investor day in May that it could reach a key 17% return target this year, ahead of schedule. In fact, the bank has reached this level this quarter.
Shares of JPMorgan have fallen 29% this year to Wednesday, worse than the 19% drop in the KBW Bank index.
Morgan Stanley also reported gains on Thursday and, like JPMorgan, its results were shy of Wall Street expectations. The bank was hit by a drop in investment banking revenues.
Wells Fargo and Citigroup are expected to release their results on Friday and Bank of America and Goldman Sachs are scheduled for Monday.
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