JPMorgan Sets Aside $900 million To Prepare for Economic Turmoil

JPMorgan Chase kicked off first quarter earnings with a profit of $8.28 billion in the first quarter, down from $14.3 billion a year ago. Revenue fell 5% to $30.72 billion, ahead of analyst expectations for $30.59 billion, according to FactSet. $JPM shares fell 3.2% to $127.30 after the release with the stock now down about 20% this year, while the S&P 500 is down 7%. JPMorgan took total credit charges of $1.5 billion. Of the $900 million set aside for potential future losses with about one-third was tied to Russia

BlackRock (NYSE: BLK) also reported. Wells Fargo (NYSE: WFC), Citigroup (NYSE:C), Goldman Sachs Group Inc. and Morgan Stanley report on Thursday, while Bank of America Corp. will go it alone on Monday.

john pierpont morgan
JP Morgan

JPMorgan Chase $JPM, America’s largest bank kicked off the banking sector’s Q1 22 earnings season on Tuesday before the market opens. Last quarter JP Morgan blew away consensus expectations on both profits and revenues.

JPMorgan Q1 2022

Q1 2022 earnings before the open; conference call at 8:30 a.m. ET Tuesday

  • Profits of $8.28 billion in the first quarter, down from $14.3 billion a year ago.
  • Revenue fell 5% to $30.72 billion, ahead of analyst expectations for $30.59 billion, according to FactSet.
  • Consumer spending on credit cards rose 29%, with a 64% increase in spending on travel and entertainment.
  • Consumers started carrying more debt as well, as credit-card loans increased 15%.
  • 15% increase in consumer and small-business deposits
  • Losses on consumer loans were just 0.5% of outstanding loans, and there were fewer loans in 30-day and 90-day delinquencies than a year ago.
  • JPMorgan’s consumer operation saw total revenue decline in the quarter.
  • Mortgage originations dropped 37% from a year ago, largely due to soaring interest rates on home loans.
  • Auto-loan originations dropped 25% because of a drought of available vehicles.
  • A sharp decline in the volume of initial public offerings helped push revenue down 7% and profit down 26% in JPMorgan’s corporate and investment bank.
  • Trading revenue fell 11% to $5.3 billion
  • Net interest income of $13.7 billion v $13.1 billion forecast was up 3% from a year ago.
  • Total investment-banking fees fell 31%. Equity underwriting sank 76% to its worst quarter in six years.
  • Trading revenue fell 3% from the year earlier
  • Fixed-income trading was down 1%, and equities trading fell 7%.

Credit Charges and Losses

JPMorgan took total credit charges of $1.5 billion. Of the $900 million set aside for potential future losses, about one-third was tied to Russia, Chief Financial Officer Jeremy Barnum said.

The rest, he said, is to account for the risk that interest-rate increases by the Federal Reserve could cause the economy to slow too much, resulting in a recession.

JPMorgan’s corporate and investment bank took $524 million in losses related to the bank’s commodities and Russia exposure, including $120 million in trading losses tied to nickel. JPMorgan is a top margin lender to Chinese metals giant Tsingshan Holding Group, whose giant short position on nickel plunged when the price of the metal surged after Russia invaded Ukraine.

Jamie Dimon Outlook

JPM surprised by setting aside $900 million in new funds to prepare for economic turmoil; a year ago, it freed up $5.2 billion it had reserved for potential loan losses in the pandemic’s early months.

“Those are very powerful forces, and those things are going to collide at one point,” “No one knows what’s going to turn out.” Chief Executive Jamie Dimon

A recession, he said, is far from a sure thing. “Is it possible? Absolutely,” he said.

“I cannot foresee any scenario at all where you’re not going to have a lot of volatility in markets,” he said. “That could be good or bad for trading, but there’s almost no chance it won’t happen.”


Higher rates increase margins

The brighter outlook for bank profits coincides with higher Treasury yields. The benchmark 10-year Treasury yield has risen dramatically for the year-to-date, with higher interest rates boosting banks income from their core lending businesses.  

The bank’s net interest margin, a measure of what it collects on loans minus what it pays for deposits, rose to 1.67% from 1.63% at the end of December. Total loans increased 6%, a welcome sign after two years of sluggish loan growth.

Source: JPM, WFC, C, BLK,

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