Jamie Dimon, Chairman and CEO of JP Morgan Chase.
Adam Jeffrey | CNBC
JPMorgan Chase said Wednesday that first-quarter profits fell sharply from a year earlier, due to rising bad debt costs and market upheaval caused by the war in Ukraine.
Here are the numbers:
- Adjusted earnings: $2.76 per share vs. $2.69 estimated.
- Revenue: $31.59 billion vs $30.86 billion estimated, according to Refinitiv.
Earnings fell 42% from a year earlier to $8.28 billion, or $2.63 per share, the New York-based bank mentioned. Adjusted profit of $2.76, which excludes the 13-cent Russia-related impact, beat analysts’ estimate of $2.69 polled by Refinitiv.
Revenue fell a more modest 5% to $31.59 billion, beating analysts’ estimate for the quarter, helped by better-than-expected business results.
The bank’s shares fell 3.2%, hitting a new 52-week low.
The quarter illustrated how quickly events changed the outlook for the industry. A year ago, JPMorgan CEO Jamie Dimon predicted a long-lasting economic expansion and banks were reaping the benefits as billions of dollars in loan loss reserves were released. Now, amid runaway inflation and Europe’s worst conflict since World War II, Dimon has drawn attention to the possibility of a coming recession.
JPMorgan said it took a $902 million charge to build credit reserves for anticipated loan losses, up from $5.2 billion a year earlier. The bank also recorded losses of $524 million due to markdowns and widening spreads after the Russian invasion of its neighbor.
Combined, the two factors sapped 36 cents from earnings in the quarter, the bank said.
Dimon said he had been building up credit reserves due to “higher downside risk probabilities” in the U.S. economy, particularly the impact of high inflation and the conflict in Ukraine.
“We remain optimistic about the economy, at least in the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but we foresee significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,” Dimon said.
The bank’s provision for credit losses, which includes the build-up of reserves of $902 million, was $1.46 billion, more than double the $617.5 million expected by analysts.
JPMorgan, the largest U.S. bank by assets, is being watched closely for clues about how Wall Street fared during a tumultuous first quarter. On the one hand, investment banking fees were set to plunge due to a to slow down mergers, IPOs and debt issuances during the period. On the other hand, the volatility spikes and market disruptions caused by the war in Ukraine may have benefited some bond desks.
That means there could be more winners and losers on Wall Street than usual this quarter: Companies that have navigated well in choppy markets could beat expectations after analysts cut estimates in recent weeks, while others might disclose commercial outbursts.
Indeed, fixed income trading revenue of $5.7 billion in the quarter beat analysts’ estimates of about $800 million, and equity trading revenue of $3.1 billion. dollars exceeded estimates by almost $500 million. Meanwhile, investment banking revenue of $2.1 billion was lower than the $2.37 billion estimate.
JPMorgan said last month that its trading revenue fell 10% through early March, but turmoil over the war in Ukraine and sanctions on Russia has raised new expectations. impossible.
“The markets are extremely treacherous right now, there’s a lot of uncertainty,” Troy Rohrbaugh, JPMorgan’s head of global markets, said at the March 8 conference call.
Another area of interest to investors is how the industry benefits from rising interest rates, which tend to inflate banks’ credit spreads. Analysts also expect loan growth to improve, with Federal Reserve data showing bank lending rose 8% in the first quarter, driven by commercial borrowers.
JPMorgan’s net interest income climbed 7% to $13.97 billion, beating the estimate of $13.7 billion.
Yet, as long-term rates rose during the quarter, short-term rates rose further, and this flat, or in some cases inverted, yield curve raised concerns of a coming recession. Banks sell when investors worry about a recession because it could create higher loan losses as borrowers fall behind.
JPMorgan said last month it was ending its operations in Russia. Dimon said in its annual letter to shareholders that while management isn’t worried about its exposure to Russia, it could “still lose about $1 billion over time.”
In a call with reporters on Wednesday, chief financial officer Jeremy Barnum said there was about $600 million of exposure left in Russia after taking the hit in the quarter.
JPMorgan shares fell 16.9% this year before Wednesday, worse than the 10.6% drop in the KBW banking index.
Rival banks Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo are expected to report results on Thursday.