JPMorgan Chase Q1 2022 earnings report. Market volatility has increased as a result of the Ukraine conflict, inflation, and supply chain concerns.
JPMorgan Chase & Co. (JPM) announced mixed earnings for the first quarter of fiscal year 2022. The bank's first-quarter earnings decreased 42 percent year on year, owing in part to asset write-downs of about $1.5 billion due to rising inflation, Russia's war in Ukraine, and supply chain issues.
Revenue for the quarter exceeded expectations, despite being 4.8 percent lower than the previous quarter. Analysts predicted that the bank's net interest margin would be higher.
The country's largest bank by assets reported a profit of $8.3 billion, or $2.63 per share, down from a profit of $14.3 billion, or $4.50 per share, at the same time last year. According to FactSet, the earnings fell short of Wall Street analysts' expectations of $2.72 per share for JPMorgan. Net interest income increased by 7% to $13.97 billion, exceeding the $13.7 billion projection.
Revenue fell a relatively moderate 5% to $31.59 billion, beating analysts' expectations for the quarter, thanks to better-than-expected trade outcomes. The bank's stock fell 3.2 percent, setting a new 52-week low.
CEO Jamie Dimon stated that he increased credit reserves due to "greater probabilities of negative risk" in the US economy, owing to the impact of rising inflation and the Ukraine crisis.
Dimon previously cautioned shareholders in his widely read annual letter to shareholders earlier this month that Russia's continued assault on Ukraine would significantly damage the US and global economies.
JPMorgan stated that loan growth remained solid throughout the quarter, with firmwide loans increasing by 5% and credit losses remaining at historical lows. The bank expressed short-term optimism about the economy, noting stable consumer and company balance sheets as well as robust levels of consumer expenditure. However, excessive inflation, supply chain concerns, and the crisis in Ukraine all represent considerable long-term dangers.
The bank reported $524 million in losses as a result of markdowns and widening spreads following Russia's invasion of its neighbor. In addition, the bank incurred a $902 million charge to bolster credit reserves for expected loan losses, compared to a $5.2 billion release the previous year.
The two variables combined to deduct 36 cents from the bank's earnings for the quarter.
The business has been a significant outperformer in the banking sector, which has trailed the wider market this year due to concerns over U.S. bank links to Russia and fears of an economic downturn. Nonetheless, JPMorgan's stock is down 18.7 percent this year so far.
CFO Jeremy Barnum told reporters on Wednesday that the bank lost an additional $120 million in the first quarter due to the London Metals Exchange's nickel trading turbulence in March. JPMorgan had backed Chinese miner Tsingshan Holding Group, which was trapped in a short squeeze that reached $15 billion at its peak.
JPMorgan, the largest bank in the United States, reported a 28% reduction in investment banking revenue in the first quarter. Because of weaker equity and debt underwriting activity, investment banking fees declined by 31%.
Net interest margins are compressed in exceptionally low interest rate situations because banks cut rates offered to borrowers to stay competitive but are hesitant to drop rates paid to creditors below the lower zero bound. Since the Federal Reserve cut rates in 2020 to assist in dealing with the economic catastrophe caused by the COVID-19 pandemic, net interest margins have been compressed.
However, increasing inflation has forced the Fed to raise interest rates sooner than predicted. Last month, the Fed hiked interest rates for the first time since 2018. Fed policymakers also sketched out an ambitious rate hike timeline, which might result in considerably higher interest rates by the end of the year.
In a statement, JPMorgan Chase Chairman and CEO Jamie Dimon said the firm expects "major geopolitical and economic problems ahead owing to rising inflation, supply chain concerns, and the crisis in Ukraine." The bank's board of directors also approved a $30 billion share repurchase.
JPMorgan increased its first-quarter earnings a year earlier by releasing more than $4 billion in credit reserves due to the improved economy and the diminishing COVID-19 outbreak. For more than a year, JPMorgan and other banks have been distributing cash set aside to cover possibly problematic loans. These releases had greatly increased the banks' profits, but investors recognized that these one-time earnings boosts were only transitory.
JPMorgan is now heading backwards. The bank put aside $1.46 billion to write down assets linked to Russia as well as assets negatively exposed to continuously increasing inflation. The majority of the bank's Russian exposure, according to the bank, was in its investment banking and asset management divisions.
During a conference call with reporters on Wednesday, CFO Jeremy Barnum said there remained about $600 million in Russia exposure left after the quarter's damage.
The bank's CEO also stated that JPMorgan may incur a $1 billion loss as a result of the fight. However, Dimon did not provide a specific time range or explain how the estimate was made. Although the bank stated that it is not concerned about its direct exposure to Russia, it is concerned about the "secondary and collateral consequences" that the crisis and sanctions are having on so many firms and nations.
At a conference on March 8, Troy Rohrbaugh, JPMorgan's global markets chief, said, "The markets are incredibly dangerous right now; there's a lot of uncertainty."
Another point of interest for investors is how the sector is capitalizing on higher interest rates, which tend to boost banks' lending margins. Analysts also expect improved loan growth since figures from the Federal Reserve indicate that bank loans climbed by 8% in the first quarter, mostly due to commercial customers.
According to JPMorgan experts, the United States' gross domestic product (GDP) would grow by about 2.5 percent, down from the institution's initial projection of 3 percent. On a conference call with journalists after the bank published profits on Wednesday, Dimon said he was not expecting a recession, but that one was "certainly" possible.
Despite the fact that longer-term rates climbed throughout the quarter, short-term rates jumped much more, and the yield curve remained flat, or inverted in certain cases, raising fears of an impending recession. When investors fear a recession, banks sell their shares in anticipation of a spike in loan losses as borrowers default.
Investment banking also fell short of analyst expectations, coming in at $2.1 billion versus the $2.25 billion projected, as geopolitical uncertainties in Eastern Europe slowed transaction activity in the first quarter. Investment banking fees were down 31% owing to weaker equity and debt underwriting activity, according to the bank, marking the lowest fees since the first quarter of 2021.
Dimon has stated publicly that the American consumer is in the finest position he has seen in his career. Delinquencies are low, and incomes are growing, making it simpler for consumers to pay their bills. JPMorgan's consumer banking division observed an increase in credit card expenditure as well as an increase in travel and leisure spending.
Indeed, fixed income trading revenue of $5.7 billion was above analysts' expectations by about $800 million in the quarter, while equity trading revenue of $3.1 billion surpassed expectations by nearly $500 million. At the same time, investment banking revenue of $2.1 billion fell short of expectations of $2.37 billion.
Last month, JPMorgan reported a 10% reduction in trading income from January to early March but said further estimates were unattainable due to uncertainty linked to the Ukraine crisis and Russian sanctions.
Market volatility during the first three months of the year as a result of Russia's invasion, as well as inflation, had a detrimental influence on the bank's trading desks. Profits at JPMorgan's corporate and investment banks fell 26 percent year on year. As corporations put acquisitions on hold, investment banking revenue and fees fell substantially. Revenue from stock and bond trading has also decreased.
In pre-market trading, the bank's stock was down more than 3%. JPMorgan's shares have produced a total return of -13.5 percent over the last year, considerably below the S&P 500's total return of 6.5 percent. Shares fell 1.1 percent in premarket trading on Wednesday.
