JPMorgan Chase said on Wednesday that first-quarter earnings fell sharply from a year earlier, driven by higher bad loan costs and market turmoil caused by the Ukraine war.
Here are the numbers:
- Adjusted earnings: $2.76 per share versus an estimate of $2.69.
- Revenue: $31.59 billion versus an estimated $30.86 billion, according to Refinitiv.
The New York-based bank said earnings fell 42 percent from a year earlier to $8.28 billion, or $2.63 per share. Adjusted earnings of $2.76, which excludes the impact of 13 cents linked to Russia, beat analysts’ estimates of $2.69 in a Refinitiv poll.
Revenue fell 5% more-than-expected to $31.59 billion, topping analysts’ estimates for the quarter, buoyed by better-than-expected trading results.
The bank’s shares fell 3.2% to a 52-week low.
The quarter demonstrated how quickly events have changed the outlook for the industry. A year ago, JPMorgan CEO Jamie Dimon predicted a long-term economic expansion would take place and that banks would reap benefits as billions of dollars in loan-loss reserves were freed up. Now, amid rampant inflation and the worst European conflict since World War II, Dimon has drawn attention to the possibility of a future recession.
JPMorgan said it took $902 million to build up credit reserves for expected loan losses, compared with $5.2 billion a year earlier. The bank also incurred $524 million in losses driven by buyouts and widening profit margins after the Russian invasion of its neighbour.
Combined, the two factors drained 36 cents of the quarter’s profit, the bank said.
Dimon said he built up credit reserves because of a “high potential for downside risks” in the US economy, specifically from 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 see significant geopolitical and economic challenges ahead due to rising inflation, supply chain issues and war in the region,” Dimon said.
The bank’s provision for credit losses, which includes $902 million in reserves, was $1.46 billion, more than double the $617.5 million analysts had expected.
JPMorgan, the largest US bank by assets, is watching closely for clues on how Wall Street performed during the turbulent first quarter. On the one hand, investment banking fees were expected to fall due to the slowdown in mergers, IPOs and debt issuance in that period. On the other hand, sharp spikes in volatility and market turmoil caused by the Ukraine war may have benefited some fixed income offices.
That means there could be more Wall Street winners and losers than usual this quarter: Companies that have weathered volatile markets well can beat expectations after analysts cut estimates in recent weeks, while others can reveal trading explosions.
In fact, fixed income trading revenue of $5.7 billion this quarter exceeded analysts’ estimates by about $800 million, and equity trading revenue of $3.1 billion exceeded estimates by nearly $500 million. At the same time, investment banking revenue of $2.1 billion came in below estimates of $2.37 billion.
JPMorgan said last month that its trading revenue was down 10% through early March, but turmoil related to the Ukraine war and sanctions against Russia made further forecasts impossible.
“The markets are very treacherous right now; there is a lot of uncertainty,” Troy Rohrbow, head of global markets at JPMorgan, said during the March 8 conference.
Another area that investors are focusing on is how the industry benefits from higher interest rates, which tend to increase bank lending margins. Analysts also expect loan growth to improve as Federal Reserve data shows bank loans increased 8% in the first quarter, driven by commercial borrowers.
JPMorgan’s net interest income rose 7% to $13.97 billion, topping an estimate of $13.7 billion.
However, while long-term rates rose during the quarter, short-term rates rose more, and a flat, or inverted, yield curve in some cases raised concerns about a future recession. Banks sell when investors are worried about a recession because that could lead to an increase in loan losses as borrowers default.
JPMorgan said last month it was ending its operations in Russia. Dimon said in his annual letter to shareholders that while management is not concerned about its exposure to Russia, it “could lose about $1 billion over time.”
During a call Wednesday with reporters, CFO Jeremy Barnum said there was nearly $600 million left in Russia’s exposure after it took the quarter hit.
JPMorgan shares have fallen 16.9% this year before Wednesday, worse than the KBW Bank’s 10.6% decline.
Rival banks Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo are due to announce their results on Thursday.