“As far as the things that you don’t want to see, you’ve got pretty much every one of them,” Thomas Hayes, managing member at Great Hill Capital Llc in New York, said. “Missing the top and bottom line, cutting the buybacks and increasing credit reserves are all things consistent with battening down the hatches for a recession,” he added. JPMorgan’s shares slid nearly 5% as the bank recorded $1.1 billion in provision for credit losses, including a $428 million boost in loss provisions. Last year, the bank had released $3 billion from its reserves.
Rival Morgan Stanley also reported a slump in its dealmaking unit. Lower fees from fewer debt and equity issuances and a $257 million markdown on its book of bridge loans also hurt the investment banking business. “Our bridge book, it’s smaller than it was because we priced ourself out of the market … a lot of people can lose a lot of money there, and we lost a little,” Dimon told analysts on a call.
JPMorgan Chief Financial Officer Jeremy Barnum said that while the bank’s existing underwriting pipeline remains healthy, it may be difficult for older deals to close. Trading, however, was a bright spot, with total markets revenue up 15%, with fixed income and equity trading both recording jumps. The bank’s net interest income (NII) rose 19% to $15.2 billion. For the year, it expects NII, excluding markets, to be more than $58 billion, up from its earlier forecast of $56 billion.
Like rivals, JPMorgan last year rode the dealmaking wave and advised on several major business combinations, underwrote some of the biggest stock market flotations and helped put together deals involving special purpose acquisition companies. However, Russia’s invasion of Ukraine in February and fears around an economic recession dealt a blow to merger and acquisition (M&A) activity in 2022. M&A activity in the United States also plunged 40% to $456 billion in the second quarter.
Closer home, however, the economy continues to grow and the job market and consumer spending remain healthy, Dimon said, even as the bank braced for potential loan losses by setting aside more money. Overall, the results presented a grim picture for the three months since the U.S. Federal Reserve started raising interest rates to tame runaway inflation, sending financial markets into a tailspin on fears of slowing growth.
It posted a profit of $8.6 billion, or $2.76 per share, missing the average analyst estimate of $2.88 per share, according to Refinitiv. Other large U.S. banks including Citigroup and Wells Fargo will report results this week, while Goldman Sachs and Bank of America will round out big bank earnings season next week. DEALS DOWN Investment bankers fared the worst at JPMorgan, with revenue from the business sliding 61% to $1.4 billion.
Rate hikes benefit big lenders by increasing what they earn from loans, but rapid increases could slow the economy, leaving consumers to absorb higher borrowing costs, in turn slowing loan growth for banks. The Fed is expected to ramp up its battle with 40-year high inflation with a dramatic 100 basis points rate hike this month after a grim inflation report on Wednesday.