Carleton English
JPMorgan Chase kicked off the third-quarter earnings season for big banks on Friday with a beat that gave investors confidence in a sector that has recently been shunned amid worries over the macroeconomic environment.
While the bank posted a drop in profit from the year-ago quarter, it wasn't as bad as feared. JPMorgan (ticker: JPM) earned $9.7 billion, or $3.12 a share -- topping expectations of analysts surveyed by FactSet who expected that profits would be $8.7 billion, or $2.90 a share. Still, even with the beat, profits fell 17% from the year-ago quarter as the bank set aside $808 million in reserves and suffered $959 million in securities losses. Revenue also came in higher than expected, hitting $33.5 billion, topping expectations of $32.1 billion.
Despite the beat, JPMorgan CEO Jamie Dimon reiterated that while the bank is strong, the economy is still facing serious headwinds, including war in Ukraine, and the impacts of global central banks tightening monetary policy.
"While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes so we can continue to serve customers even in the most challenging of times," Dimon said.
Speaking at a CNBC conference this week, Dimon warned that the U.S. could be in a recession within the next six to nine months. That has Wall Street wondering how the bank and its peers will hold up.
So far earnings at the big banks have been a mixed bag. Citigroup's $(C)$ results also surprised to the upside as the bank continues to make progress on its turnaround. But the picture was less positive at Wells Fargo $(WFC)$, which missed earnings expectations despite a 36% increase in net interest income. Morgan Stanley $(MS)$ fared the worst Friday after posting a 55% year-over-year drop in investment banking revenue amid a slowdown in deal making.
But while earnings have been mixed, executives so far have sounded cautious but not fearful about the challenging macroeconomic picture, which includes the Federal Reserve raising interest rates to slow down inflation.
While higher interest rates help banks by increasing the interest they can rake in on loans, the Fed's moves also run the risk of tipping the economy into a recession, which could lead to a wave of defaults. So far, JPMorgan has been insulated from much of that pain.
Net interest income soared 34% from last year to $17.6 billion, reflecting the impact of higher rates. Meanwhile, net charge-offs climbed by $203 million to $727 million and the bank added to its reserves due to higher loan balances and in preparation for a wave of defaults if a recession were to come.
Dimon and others have repeatedly warned that geopolitical concerns and the Federal Reserve's tightening could wreak havoc on the economy.
"These are very, very serious things which I think are likely to push the U.S. and the world -- I mean, Europe is already in recession -- and they're likely to put the U.S. in some kind of recession six to nine months from now," Dimon told CNBC this week, adding that he could see the S&P 500 falling by another 20%.
While Wall Street will be paying close attention to JPMorgan's results, it will also be looking for more macroeconomic commentary from Dimon.
Banks have had a challenging year but JPMorgan has fared worse than peers. Its shares are off by 35% this year, lagging behind the SPDR S&P Bank exchange-traded fund $(KBE)$, which is down by 17%. JPMorgan shares suffered after the bank posted its previous quarterly results, which were weaker than expected, and announced the end of share repurchases in an effort to build up a capital cushion.
Wall Street will get more banking news next week when Bank of America $(BAC)$ reports on Monday and Goldman Sachs Group $(GS)$ releases results on Tuesday.
Write to Carleton English at carleton.english@dowjones.com
(END) Dow Jones Newswires
October 14, 2022 11:13 ET (15:13 GMT)
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