JPMorgan Chase said Wednesday that first-quarter profits fell sharply from a year earlier, due to rising bad debt costs and market upheaval caused by the war in Ukraine.
Here are the numbers:
- Earnings: $2.63 per share (uncertain if comparable to estimate of $2.69).
- Revenue: $31.59 billion vs $30.86 billion estimated, according to Refinitiv.
Earnings fell 42% from a year earlier to $8.28 billion, or $2.63 per share, the New York-based bank said. Revenue fell a more modest 5% to $31.59 billion, beating analysts’ estimate for the quarter. The bank’s shares fell 1.2% in premarket trading.
JPMorgan said it took a charge of $902 million to build credit reserves for anticipated loan losses and recorded losses of $524 million due to markdowns and widening spreads after the invasion of its neighbor by Russia. Combined, the two factors sapped 36 cents from earnings in the quarter, the bank said.
CEO Jamie Dimon cautioned in his remarks, saying he had been building up credit reserves due to “higher probabilities of downside risk” in the US economy, particularly the impact of high inflation and of the conflict in Ukraine.
“We remain optimistic about the economy, at least in the near term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but we foresee significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,” Dimon said.
The bank’s provision for credit losses, which includes the build-up of reserves of $902 million, was $1.46 billion, more than double the $617.5 million expected by analysts.
JPMorgan, the largest US bank by assets, is being watched closely for clues about how Wall Street fared during a tumultuous first quarter.
For one, investment banking fees are expected to plunge due to a slowdown in mergers, IPOs and debt issuances over the period. On the other hand, the volatility spikes and market disruptions caused by the war in Ukraine may have benefited some bond desks.
That means there could be more winners and losers on Wall Street than usual this quarter: Companies that have navigated well in choppy markets could beat expectations after analysts cut estimates in recent weeks, while others might disclose commercial outbursts.
JPMorgan said last month its trading revenue fell 10% through early March, but turmoil from the war in Ukraine and sanctions on Russia made further forecasts impossible.
“The markets are extremely treacherous right now, there’s a lot of uncertainty,” Troy Rohrbaugh, JPMorgan’s head of global markets, said at the March 8 conference call. “The full ramifications of the current conditions are still unclear.”
Another area of interest to investors is how the industry benefits from rising interest rates, which tend to inflate banks’ credit spreads. Analysts also expect loan growth to improve, with Federal Reserve data showing bank lending rose 8% in the first quarter, driven by commercial borrowers.
Yet, as long-term rates rose during the quarter, short-term rates rose further, and this flat, or in some cases inverted, yield curve raised concerns of a coming recession. Banks sell when investors worry about recession because it could create higher loan losses as borrowers fall behind.
Analysts will also be keen to hear what the leaders have to say about their direct and indirect exposure to the Ukrainian conflict. JPMorgan said last month it was ending its operations in Russia. Dimon said in its annual letter to shareholders that while management isn’t worried about its exposure to Russia, it could “still lose about $1 billion over time.”
Finally, after JPMorgan released its forecast for rising spending this year in January, analysts will want to know more about the trajectory of rising costs.
JPMorgan shares fell 16.9% this year before Wednesday, worse than the 10.6% drop in the KBW banking index.
Rival banks Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo are expected to report results on Thursday.
This story is developing. Please check for updates.
JPM 1Q 2022 results
Source link JPM 1Q 2022 results