Bank earnings season got off to a rough start on Thursday after
Second-quarter business results did not meet Wall Street’s expectations. Making matters worse, the lender said it was suspending share buybacks.
The freeze on buybacks comes as the bank’s response to a request by the Federal Reserve forces it to expand a capital buffer that could help it weather a recession, following a central bank stress test last month.
The agency is also taking a more cautious approach as it prepares for what Chief Executive Jamie Dimon warned last month could be an economic “storm”.
Dimon tried to clarify his worries about the economy during a call with analysts on Thursday morning. While he noted that there are serious obstacles – inflation, the Fed’s quantitative tightening and the war in Ukraine – Dimon tried to emphasize that the bank is equipped to deal with the challenges.
“There is a range of potential outcomes from soft landings to hard landings,” says Dimon. “It won’t change the way we run the company.”
Investors were not convinced. Shares of JPMorgan (ticker: JPM) were down more than 5% on Thursday morning.
JPMorgan’s results and Dimon’s comments reflect what tightening banking executives face when discussing a possible recession. While banks must talk about the risks they face, doing so may alarm investors rather than be warranted. Recessions are rarely good for banks, but they are also part of the business cycle. While banks like JPMorgan can expect slower growth and increased credit losses, regulations from the 2008-2009 financial crisis make them more resilient to the crisis. than.
“We know that if you have a recession, the losses go up. We’re prepared for all of that, and we’re willing to do so because we grow the business over time,” said Dimon.
Expectations for the banking sector has been disturbed earnings, with analysts forecasting banks to increase net interest income as interest rates rise, while also bracing for a recession.
That’s especially true in the case of JPMorgan, which saw net interest income rise 19% year over year. But Wall Street is more worried about the measures banks are taking to get ready for a recession. While JPMorgan easily passed the Fed’s annual stress test, it must increase its stress buffer to be able to perform better should the economy turn around.
“In order to quickly respond to higher requirements, we have suspended share buybacks, which will allow us maximum flexibility to best serve our customers, clients and communities. through a variety of economic environments,” Dimon said in prepared remarks.
That and the missed earnings were more than enough to give Wall Street pause.
Analysts surveyed by FactSet had expected the bank to post second-quarter earnings of $2.89 per share, down nearly 25% from a year ago. Revenue is expected to grow 4% to $31.8 billion. Instead, JPMorgan posted earnings of $2.76 from revenue of $30.7 billion. Net income fell 28% year-over-year as the bank increased its provision for contingent loans to $428 million in anticipation of depleted loans. The bank also collected $657 million in net clearing.
JPMorgan was one of the Bank stocks hit harder this year. Shares are down nearly 30%, outpacing the 20% drop in
SPDR Bank S&P Exchange Fund
(KBE). Stocks tumbled earlier this year as banks posted Cost is higher than expected due to increased wages and business investment. And in April, this bank reported lower-than-expected profit.
There were a few bright spots in Thursday’s report. Banks return on tangible equity (ROTCE) —a measure of profitability — hit 17% this quarter, hitting the target the bank had previously set. The bank also saw a 15% increase in trading revenue, with its fixed income and equities business benefiting equally from market volatility.
Morgan Stanley (MS) also reported results on Thursday, while
(WFC) will reveal their second-quarter figures before the bell on Friday.
Bank of America
(GS) will report on Monday.
Write to Carleton English at firstname.lastname@example.org