JPMorgan Chase said the US economy remains on solid footing in the short term, but warned of heightened longer-term risks due to inflation and the Ukraine war as it reported lower quarterly profits.
Executives from the giant bank said households and businesses generally remained in good shape amid a tightening labor market.
But higher consumer prices, the Ukraine war and the shifts in Federal Reserve policy have together slightly raised the recession risk, which led the bank to set aside $902 million in additional reserves as a buffer against possible bad loans.
“There’s this very strong underlying economy,” Chief Executive Jamie Dimon said, noting that many consumers are flush with cash and businesses are in “good shape” for the most part.
But he pointed to “countervailing forces,” including rising interest rates and inflation, and the war in Ukraine.
“And those things are going to collide at one point, probably sometime next year,” he said.
“I’m not predicting a recession,” Dimon added in a conference call with reporters. “But is it possible? Absolutely.”
– ‘Wars are unpredictable’ –
The biggest US bank by assets, JPMorgan reported $8.3 billion in first-quarter profits, down 42 percent from the same three months of the prior year. Revenues dipped five percent to $30.7 billion.
JPMorgan scored higher net interest income, reflecting a boost to lending fees because of higher lending rates.
Profits fell in investment banking on lower equity and debt underwriting fees. The division also suffered a $120 million hit tied to upheaval in the nickel market in March that pressured some commodity brokerages, company officials said.
The results contrasted sharply from a year ago, when JPMorgan saw surging profits after it unlocked $5.2 billion in funds it had set aside early in the pandemic against potential defaults, but didn’t need because of the surprisingly solid condition of clients.
In the latest quarter, JPMorgan set aside $902 million for bad loans, citing “downside risks” including the Ukraine war and surging inflation.
About $300 million of that amount is connected to Russia-related exposures, with the remaining funds reflecting broader economic risks, executives said.
Charge offs for the first quarter came in at a relatively modest $582 million, another sign of the healthy condition of consumers.
In terms of customer trends, Dimon cited an uptick in credit card spending on dining and travel, but said higher mortgage rates had dented home lending originations, while limited vehicle availability crimped car loan originations.
Dimon highlighted the Ukraine situation as a wildcard, warning that “wars are unpredictable” and the oil market could “change dramatically.”
“The oil markets are precarious,” he said, adding that “clouds are on the horizon.”
The CEO also predicted elevated volatility throughout financial markets given the scale of the Fed’s asset unwind.
“We’ve never been through a (quantitative tightening) like this,” Dimon said.
“So this is a new thing for the world and I think is more substantially important than other people think, because the huge change of flows of funds is going to create as people change their investment portfolio.”
Briefing.com called the earnings report a “red flag” for the banking industry.
While far from disastrous, the JPMorgan results “shows that some cracks are forming, particularly in consumer lending (home and auto), adding to growth concerns for banks and the economy,” Briefing.com said.
JPMorgan’s shares fell 3.2 percent to $127.30.
Other large banks, including Goldman Sachs, Citigroup and Bank of America, will report results in coming days.
