JPMorgan halts buybacks, warns global economy as profits plummet

By Noor Zainab Hussain and David Henry

(Reuters) – JPMorgan Chase & Co reported a bigger-than-expected 28% drop in quarterly profit and suspended share buybacks on Thursday as the largest U.S. bank set aside more cash to cover potential losses in the face of growing risks of recession.

Managing Director Jamie Dimon stressed the need to build capital buffers, while flagging a number of concerns including the war in Ukraine, high inflation and “unprecedented” quantitative easing as threats to global economic growth. .

Closer to home, however, the economy continues to grow and labor market and consumer spending remain healthy, Dimon said.

Shares of JPMorgan fell more than 4% as the bank recorded $1.1 billion in provision for credit losses compared to last year, when it released $3 billion from its reserves.

The four largest U.S. banks are expected to book $3.5 billion in loss provisions for the quarter as they brace for a sharp economic slowdown as the U.S. Federal Reserve aggressively raises interest rates to control inflation galloping.

JPMorgan reported earnings of $8.6 billion, or $2.76 per share, missing analysts’ average estimate of $2.88 per share, according to Refinitiv.

“As for the things you don’t want to see, you pretty much have them all,” said Thomas Hayes, managing member of Great Hill Capital Llc in New York.

“Missing the top and bottom, reducing redemptions and increasing credit reserves are all entirely consistent with battening down the hatches for a recession,” he added.

The disappointing results hurt the broader market, with US stock index futures extending losses after profits. Morgan Stanley also reported lower second-quarter earnings as trading slumped.

Other major U.S. banks, including Citigroup and Wells Fargo, will report results this week, while Goldman Sachs and Bank of America will close the major bank earnings season next week.

LOWER OFFERS

Among JPMorgan’s business units, investment banking was the worst performer. Revenue fell 61% to $1.4 billion, mostly impacted by lower transaction fees and debt and equity issuances.

Like rivals Goldman Sachs and Morgan Stanley, JPMorgan rode the deal wave last year and advised on several major corporate combinations, underwrote some of the biggest IPOs and helped secure deals involving companies special purpose acquisition.

However, Russia’s invasion of Ukraine in February and fears of an economic recession have dealt a severe blow to mergers and acquisitions (M&A) activity in 2022. The value of deals announced globally at second quarter fell 25.5% year-on-year to $1 trillion. according to Dealogic data.

Mergers and acquisitions activity in the United States also fell 40% to $456 billion in the second quarter.

Trading, however, was a silver lining, with total market revenue up 15%, with fixed income and equity trading both recording jumps.

The bank announced a 19% increase in net interest income (NII) to $15.2 billion. For the year, it expects the NII, excluding markets, to be above $58 billion, up from its previous forecast of $56 billion.

Rate hikes benefit large lenders by increasing what they earn from loans, but rapid increases could slow the economy, leaving consumers to absorb higher borrowing costs, which would slow loan growth for businesses. banks.

The Fed is expected to step up its battle against 40-year high inflation with a dramatic 100 basis point rate hike this month after a dismal inflation report on Wednesday.

(Reporting by Noor Zainab Hussain and Niket Nishant in Bengaluru and David Henry in New York; Additional reporting by Bansari Mayur Kamdar; Editing by Saumyadeb Chakrabarty)

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