JPMorgan Chase reports lower profits, gives cautious economic outlook
JPMorgan Chase reported a drop in second-quarter profits on Thursday as it warned of a weakening global economic outlook that prompted it to set aside additional funds to cover potential bad loans.
Executives sketched out a complex economic picture, with US households still relatively well off in terms of savings, a strong job market and robust consumer spending.
But headwinds — including high inflation, geopolitical uncertainty and fast-changing Federal Reserve policy to sharply curtail liquidity — “are very likely to have negative consequences on the global economy sometime down the road,” said Chief Executive Jamie Dimon in an earnings press release.
While consumers are “in very good shape,” there are “a serious set of issues” that threaten the outlook, Dimon told reporters on a conference call.
These include the worry that Russia will cut off Germany’s natural gas supply and the possibility that the Federal Reserve’s aggressive plan may not be sufficient to rein in inflation.
“The markets will be volatile,” Dimon predicted. “You can’t have all these kind of things going on and not have volatile markets.”
The big US bank’s earnings came in at $8.6 billion for the second quarter, down 28 percent from the year-ago period in results that missed analyst expectations.
Revenues were $30.7 billion, up one percent.
The bank said it added $428 million in credit reserves due to a “modest deterioration in the economic outlook.” In the year-ago period, JPMorgan’s profits were boosted by a $3 billion release in reserves.
The bank experienced $657 million in charge-offs for bad loans, up only modestly from the level in the previous quarter.
JPMorgan enjoyed a boost from higher net interest income following Fed interest rate increases. But the bank also incurred higher expenses on salaries, technology and marketing.
In corporate and investment banking, JPMorgan posted higher revenues in its trading businesses, but lower investment banking fees.
JPMorgan temporarily suspended share buybacks to meet new federal stress test requirements for managing risk assets, Dimon said.
– Consumers still spending –
The results came as the Labor Department reported another large spike in wholesale prices, one day after US consumer prices jumped the most in more than four decades.
Rising prices are the heart of investor fears about the consumer-driven US economy.
But JPMorgan Chief Financial Officer Jeremy Barnum said “there’s essentially no evidence” at this point of a drop-off in consumption.
The bank’s credit card data confirms that consumers are spending more on food and gasoline, but that they are still also spending on travel and dining.
“That indicates to us that consumers still don’t feel so pinched by inflation that they’re cutting back on discretionary spending, and that’s a relatively positive sign,” Barnum said.
Persistently high inflation has also raised fears that the Fed will adopt an even tougher line on monetary policy after the central bank announced a 0.75-percentage-point hike, its biggest since 1994.
The latest inflation readings have prompted talk of a potential one percent increase at the Fed meeting later this month — one that Federal Reserve Governor Christopher Waller said Thursday he would support.
Dimon said the 20 percent drop in the stock market in 2022 and the anemic state of initial public offerings and other corners of the financial system are evidence of the hit from the Fed shift.
But the impacts could worsen if the US central bank is unable to slow the economy with a “soft landing,” Dimon said.
Shares fell 4.6 percent to $106.78 in morning trading.
