JPMorgan Chase on Thursday reported a fall in second-quarter earnings as it warned a weakening global economic outlook prompted it to allocate additional funds to cover potential bad loans.
Executives outlined a complex economic picture in which US households still fare relatively well in terms of savings, a strong job market and resilient consumer spending.
But headwinds — including high inflation, geopolitical uncertainty and the Federal Reserve’s rapidly changing policy of severely restricting liquidity — “will very likely have an adverse impact on the global economy at some point,” Chief Executive Jamie Dimon said in an accounting press release.
While consumers are “in very good shape,” there are “a number of serious issues” threatening the outlook, Dimon told reporters on a conference call.
These include concerns that Russia will cut off Germany’s natural gas supply and the possibility that the Federal Reserve’s aggressive plan may not be enough to curb inflation.
“Markets will be volatile,” Dimon predicted. “You can’t have all these things and not have volatile markets.”
The big US bank’s profits came in at $8.6 billion in the second quarter, down 28 percent from the same period last year, with results missing analysts’ expectations.
Revenue was $30.7 billion, up 1 percent.
The bank said it added $428 million in credit reserves due to a “slight deterioration in the economic outlook.” In the year-ago period, JPMorgan’s profits were boosted by a $3 billion release of reserves.
The bank recorded $657 million in write-downs on bad loans, up only slightly from the prior quarter.
JPMorgan benefited from higher net interest income following Fed rate hikes. But the bank also incurred higher spending on salaries, technology and marketing.
In corporate and investment banking, JPMorgan saw higher trading revenues but lower investment banking fees.
JPMorgan temporarily suspended share buybacks to meet new federal stress testing requirements for managing risky assets, Dimon said.
– Consumers are still spending –
The results came as the Labor Department reported another large rise in wholesale prices, a day after US consumer prices posted the sharpest rise in more than four decades.
Rising prices are at the heart of investor concerns about the consumer-driven US economy.
But Jeremy Barnum, JPMorgan’s chief financial officer, said “there is essentially no evidence at this point” of consumption slowing down.
The bank’s credit card data confirms that consumers are spending more on groceries and gas, but still on travel and eating out.
“This shows us that consumers are still not feeling constrained by inflation enough to cut discretionary spending, and that’s a relatively positive sign,” Barnum said.
Persistently high inflation has also raised fears that the Fed will take an even harder line on monetary policy after the central bank announced a 0.75 percentage point hike, the largest since 1994.
Recent inflation readings prompted talks of a possible 1 percent hike at the Fed meeting later this month – one that Federal Reserve Governor Christopher Waller would back on Thursday.
Dimon said the stock market’s 20 percent drop in 2022 and the anemic state of IPOs and other corners of the financial system are evidence of the impact of the Fed’s move.
But the impact could worsen if the Federal Reserve can’t slow down the economy with a “soft landing,” Dimon said.
Shares fell 4.6 percent to $106.78 in morning trade.
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