JPMorgan suspends buybacks, warns on global economy as Q2 profit slumps

JPMorgan Chase & Co reported a bigger-than-expected 28% fall in quarterly profit and suspended share buybacks on Thursday, as America's largest bank set aside more money to cover potential losses

Chief Executive Jamie Dimon stressed the need to build capital reserves, while flagging a number of concerns including the war in Ukraine, high inflation and the "never-before-seen" quantitative tightening as threats to global economic growth.

Closer home, however, the economy continues to grow and both the job market and consumer spending remain healthy, Dimon said.

JPMorgan's shares slid more than 4% as the bank recorded $1.1 billion in provision for credit losses compared with last year when it released $3 billion from its reserves.

The four biggest U.S. banks are expected to record $3.5 billion of loss provisions for the quarter, as they brace for a sharp economic slowdown with the U.S. Federal Reserve aggressively raising interest rates to control runaway inflation.

JPMorgan posted a profit of $8.6 billion, or $2.76 per share, missing the average analyst estimate of $2.88 per share, according to Refinitiv.

"As far as the things that you don't want to see, you've got pretty much every one of them," Thomas Hayes, managing member at Great Hill Capital Llc in New York, said.

"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," he added.

The downbeat results hurt the broader market with U.S. stock index futures extending losses after the earnings. Morgan Stanley also reported a drop in second-quarter profit as dealmaking slumped.

Other large U.S. banks including Citigroup and Wells Fargo will report results this week, while Goldman Sachs and Bank of America will round out big bank earnings season next week.

DEALS DOWN

Among JPMorgan's business units, investment banking performed the worst. Revenue fell 61% to $1.4 billion, mainly hurt by lower fees from deals and debt and equity issuances.

Like rivals Goldman Sachs and Morgan Stanley, JPMorgan last year rode the dealmaking wave and advised on several major business combinations, underwrote some of the biggest stock market flotations and helped put together deals involving special purpose acquisition companies.

However, Russia's invasion of Ukraine in February and fears around an economic recession dealt a blow to merger and acquisition (M&A) activity in 2022. The value of announced deals globally in the second quarter dropped 25.5% year-on-year to $1 trillion, according to Dealogic data.

M&A activity in the United States also plunged 40% to $456 billion in the second quarter.

Trading, however, was a bright spot, with total markets revenue up 15%, with fixed income and equity trading both recording jumps.

The bank reported a 19% increase in net interest income (NII) to $15.2 billion. For the year, it expects NII, excluding markets, to be more than $58 billion, up from its earlier forecast of $56 billion.

Rate hikes benefit big lenders by increasing what they earn from loans, but rapid increases could slow the economy, leaving consumers to absorb higher borrowing costs, in turn slowing loan growth for banks.

The Fed is expected to ramp up its battle with 40-year high inflation with a dramatic 100 basis points rate hike this month after a grim inflation report on Wednesday.