The report of JPMorgan, the largest US bank and economic indicator, disappointed Wall Street. JPM shares fell as the bank's earnings and earnings declined. At the same time, JPMorgan created credit reserves and also announced the impact of high inflation and the impact of Russia's war in Ukraine.
Today, JPMorgan, the largest US bank by assets, released its financial results for the first quarter of 2022.
Shares of JPMorgan (JPM), down almost 17% since the start of the year, fell 3.2% at the close of trading.
JPMorgan competitors: Goldman Sachs (GS), Morgan Stanley (MS), Citigroup (C), and Wells Fargo (WFC) will release their earnings on Thursday.
Key signals to Wall Street investors and analysts include: macro conditions are worsening, trading in financial markets is becoming more risky, JPMorgan is bracing for losses due to potential defaulted loans and a possible recession.
JP Morgan's profit and earnings decline
JP Morgan's first-quarter net income fell 42% year-over-year to $8.282 billion.
Earnings per share was $2.63 - the impact of losses from Russia-related counterparties cost the bank $0.13 per share, according to the report.
The bank's total revenue fell 5% to $31.6 billion but came in slightly above Wall Street's expectations.
An important takeaway for investors was JP Morgan's provision of $902 million for expected credit losses, up from $5.2 billion a year earlier. This allocation of reserves reduced earnings per share by $0.23.
The bank also posted a loss of $524mn caused by markdowns and widening spreads following Russia's invasion of Ukraine.
On average, bank loans grew by 5% and average deposits grew by 13%.
Fixed income trading revenue of $5.7 billion for the quarter beat analyst estimates by about $800 million, while equity trading revenue of $3.1 billion beat estimates by nearly $500 million. investment banking services of $2.1 billion fell short of an estimate of $2.37 billion.
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JPMorgan said last month that its trading revenue fell 10% in early March, but the turbulence associated with the war in Ukraine and sanctions against Russia makes further forecasts impossible.
“Markets are extremely tricky right now; there is a lot of uncertainty,” Troy Rohrbaugh, director of global markets at JPMorgan, said at a March 8 conference.
During the quarter, JP Morgan paid a $3 billion dividend, or $1 per share, while repurchasing $1.7 billion of common stock. The company's Board of Directors approved a new $30 billion common share repurchase program effective May 1.
JPMorgan forecasts are pessimistic
“Inflation and war in Ukraine are powerful forces that threaten the economy,” Dimon said, highlighting the change in his bullish outlook for the US economy.
"The Fed should try to manage this economy and try to get a soft landing [for the market], if possible."
Asked if the US could face a recession, Dimon said: “I'm not predicting a recession. Is it possible? Absolutely".
Read also: Here's How Investors Should Respond to Another US Inflation Surge
Dimon stressed that his bank had built up credit reserves because of a "higher likelihood of risk reduction" in the US economy, in particular the impact of high inflation and the conflict in Ukraine.
Dimon said: “We remain optimistic about the economy, at least in the short term – consumer and business balance sheets and consumer spending remain at healthy levels – but we see major geopolitical and economic challenges ahead due to high inflation, problems with supply chains and the war in Ukraine”.
While JP Morgan, like other banks, should make higher profits from rising Fed rates, stocks could decline if investors become more worried about a recession, as this could lead to higher credit losses.
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