JPMorgan Reports 28% Drop in 2nd Quarter Profit, Shares Fall 4%

JPMorgan's reported a 28 percent fall in quarterly profit on Thursday, causing the shares of the bank to fall 4 percent. JPMorgan Chase & Co also announced it was suspending share buybacks, having had to earmark more funds to meet eventualities including losses as fears of a recession in the US are increasing.

Chief Executive Jamie Dimon cited "never-before-seen" quantitative tightening as he spoke about the immediate threats to the global economic growth. He also highlighted the need to increase capital reserves, while flagging the continued risk from rising inflation and Ukraine's Russia invasion.

Q@ Profit is $8.6 Billion

The US banking behemoth reported a profit of $8.6 billion. This would work out to $2.76 per share, which is lower than the average analyst estimate of $2.88 per share, as per Refinitiv calculations.

h: JPMorgan Chase Tower in Houston.
h: JPMorgan Chase Tower in Houston. Wikimedia Commons

It was the investment banking unit that returned the worst performance in the quarter. Revenue from the division plunged a whopping 61 percent to $1.4 billion. However, net interest income (NII) increased 19 percent to hit $15.2 billion.

Shares in JPMorgan dropped as it set aside $1.1 billion for potential credit losses in the wake of a recession. The huge drop in JPMorgan shares also pushed the broader market down, with US stock futures extending losses on Thursday.

According to Reuters, JPMorgan and three other biggest US banks are likely to run up about $3.5 billion of loss provisions for the quarter.

Recession Fears

JPMorgan earnings point to the bigger possibility of a recession, according to analysts. "As far as the things that you don't want to see, you've got pretty much every one of them .. Missing the top and bottom line, cutting the buybacks and increasing credit reserves are all things consistent with battening down the hatches for a recession," said Thomas Hayes, managing member at Great Hill Capital Llc in New York, according to Reuters.

Analysts had warned in April that the US banking industry would be significantly affected by the impact of Russia's invasion of Ukraine, though initial estimates had not factored this possibility in.

Jamie Dimon
Jamie Dimon YouTube Grab

Russia War Impact

At the beginning of the war, there was optimism that the US banks were not likely to be severely affected by the war as they had insignificant exposure to Russia. However, as per the latest report, major banks have suffered due to a host of factors.

Apart from JPMorgan and Goldman, other major banks like Bank of America, Morgan Stanley, Citigroup and Wells Fargo are also expected to pare down revenue expectations for the year, analysts expect.

The restrictions on doing business with Russia, fears about a possible economic slowdown due to the war, rising inflation, as well as forced recalibration of banks' overseas plans damped the spirits in the banking sector. With the bond yields suggesting a potential recession, the outlook could turn murkier for the industry in the coming quarters.