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JPMorgan suspends buybacks, warns on global economy as profits fall

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July 14 (Reuters) – JPMorgan Chase & Co.’s Jamie Dimon hit a cautionary note on the global economy as America’s largest bank reported a more-than-expected 28% drop in quarterly profit and suspended share buybacks . recession.

The chief executive stressed the need to build up capital reserves due to increasing requirements from regulators, flagging several concerns including war in Ukraine, high inflation and a “never-before-seen” quantitative tightening as threats to global economic growth.

Closer to home, however, the economy continues to grow and the job market and consumer spending remain healthy, Dimon said, even as the bank made up for potential loan losses by setting aside more money.

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Overall, the results present a grim picture for three months as the US Federal Reserve begins raising interest rates to tame inflation, sending financial markets into a tailspin with fears of slower growth.

“As far as the things you don’t want to see, you have pretty much every single one of them,” said Thomas Hayes, managing member of Great Hill Capital LLC in New York.

“Missing the top and bottom line, cutting buybacks and increasing credit reserves are all in line with reducing the hatch for a recession,” he said.

Shares of JPMorgan fell nearly 5% as the bank posted a record $1.1 billion in credit loss provisions, including a $428 million boost in loss provisions. Last year, the bank issued $3 billion from its reserves.

According to Refinitiv, it posted a profit of $8.6 billion, or $2.76 per share, missing the average analyst estimate of $2.88 per share.

Other large US banks, including Citigroup and Wells Fargo, will report results this week, while Goldman Sachs and Bank of America (BAC.N) will end the big bank earnings session next week.

deal down

JP Morgan CEO Jamie Dimon looks at a meeting with French President Emmanuel Macron during the 5th edition of the “Choose France” business summit at the Palace of Versailles on July 11, 2022 in Paris, France. Ludovic Marin/Reuters via Poole

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Investment bankers at JPMorgan performed the worst, with revenue from trading slipping 61% to $1.4 billion. Rival Morgan Stanley also reported a slowdown in its dealmaking unit.

Lower fees from lower debt and equity issuances and a $257 million markdown on its book of bridge loans also hurt the investment banking business.

Dimon told analysts on a call, “Our bridge book, it’s smaller than that because we locked ourselves out of the market…

Like rivals, JPMorgan rode the dealmaking wave last year and advised on several key business combinations, underwritten some of the biggest stock market floatations and helped put together deals involving special purpose acquisition companies.

However, Russia’s invasion of Ukraine in February and fears of an economic slowdown jolted merger and acquisition (M&A) activity in 2022. Read more

M&A activity in the United States also fell 40% to $456 billion in the second quarter.

JPMorgan’s chief financial officer Jeremy Barnum said the bank’s current underwriting pipeline remains healthy, but it could be difficult to close old deals.

However, trading was a bright spot, with total market revenue up 15%, with both fixed income and equity trading recording jumps.

The bank’s net interest income (NII) rose 19% to $15.2 billion. For the year, it expects NII, excluding markets, to exceed $58 billion, higher than its earlier forecast of $56 billion. read more

Raising rates gives large lenders an increase in the income earned from their loans, but a rapid increase can slow down the economy, leaving consumers to absorb higher borrowing costs, in turn for banks. Credit growth slows down.

The Fed is expected to intensify its battle with inflation at a 40-year high, rising by 100 basis points this month after a grim inflation report on Wednesday. read more

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Reporting by Noor Zainab Hussain and Niket Nishant in Bengaluru and David Henry in New York; Additional reporting by Bansari Mayur Kamdar; Editing by Soumyadev Chakraborty

Our Standards: Thomson Reuters Trust Principles.

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