JPMorgan Chase CEO Jamie Dimon speaks at the 2019 North American Building Trades Unions (NABTU) Legislative Conference in Washington, U.S., April 9, 2019.
Jeenah Moon | Reuters
JPMorgan Chase reported Thursday that second-quarter profit fell as the bank built up bad loan provisions by $428 million.
Here are the numbers:
- Earnings: $2.76 per share versus the $2.88 per share estimate of analysts polled by Refinitiv.
- Revenue: $31.63 billion, vs. $31.95 billion forecast
Profit fell 28 percent from a year earlier to $8.65 billion, or $2.76 a share, mainly due to the build-up of reserves, New York-based JPMorgan said in a statement. A year ago, the bank benefited from a $3 billion release of reserves. Revenue rose 1% to $31.63 billion, helped by a headwind from higher interest rates, but was still below analysts’ expectations.
“We are dealing with two conflicting factors operating on different schedules,” CEO Jamie Dimon said in the release. “The U.S. economy continues to grow, and both the labor market and consumer spending and spending power remain healthy. But geopolitical tensions, high inflation, declining consumer confidence, uncertainty about how high interest rates should be, and unprecedented quantitative tightening and its impact on global liquidity, combined with the war in Ukraine and its damaging impact on global energy prices and food, is very likely to have negative consequences for the global economy in the future.”
Dimon said the bank had opted to “temporarily” halt its share buybacks to help it meet regulatory capital requirements, a prospect that analysts had feared earlier this year. Last month, the bank was forced to freeze the level of its dividend while rivals increased payouts.
The bank’s shares fell 2.5% in premarket trading.
JPMorgan, the largest U.S. bank by assets, is being watched closely for clues about how the banking industry fared in a quarter marked by conflicting trends. For one thing, unemployment rates remain low, meaning consumers and businesses shouldn’t have much trouble repaying loans. Rising interest rates and loan growth mean banks’ core lending business is becoming increasingly profitable. And volatility in financial markets is favorable for fixed income traders.
But analysts have started to cut earnings forecasts for the sector amid concerns about a looming recession, and shares of most major banks have fallen to 52-week lows in recent weeks. Income from capital markets and mortgage activities fell sharply and firms could reveal new write-downs amid a broad decline in financial assets.
Importantly, a key headwind the industry enjoyed a year ago – a release of reserves as loans performed better than expected – has begun to reverse as banks are forced to set aside money for potential defaults as the risk of a recession is rising.
Back in April, JPMorgan was the first among banks to start setting aside funds for loan losses, recording a $902 million charge to build loan reserves in the quarter. That matches the more cautious outlook of CEO Jamie Dimon, who warned investors last month that an economic “hurricane” was ahead.
Aside from the second-quarter results, analysts will be interested in any updates Dimon has on its economic forecast. Inflation proved more stubborn than expected, with the US consumer price index jumping 9.1% in June alone.
In May, JPMorgan President Daniel Pinto said bank fees were on target for a 45% drop. However, earnings in the markets could jump 20% thanks to volatility in commodities and interest rates.
Thanks in part to rising U.S. interest rates, JPMorgan said at the firm’s investor day in May that it could hit a key 17% return target this year, earlier than expected. But the company was forced to keep its payout unchanged after the Federal Reserve’s annual stress test, while rivals including Goldman Sachs managed to increase their dividends last month.
Finally, bank analysts may ask whether management can adjust costs lower in response to the business environment.
JPMorgan shares have fallen 29% this year through Wednesday, worse than the 19% drop in the KBW Bank Index.
Morgan Stanley is scheduled to report results later Thursday, followed by Wells Fargo and Citigroup on Friday and Bank of America and Goldman on Monday.
This story is evolving. Please check back for updates.
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