Jan. 13 (Reuters) – JPMorgan Chase & Co (JPM.N)The largest US lender said on Friday it had set aside $1.4 billion in anticipation of a mild recession, even as it beat its quarterly profit forecast on the back of strong performance at its business unit.
JPMorgan and other banks kick off quarterly US corporate earnings that are expected to fall for the first time since the third quarter of 2020. The stock recovered, rising 2.5% at $143.04 in the afternoon.
UBS analysts said in a note that JPMorgan’s guidance on net interest income (NII) — the money the bank gets from interest payments — of $74 billion, excluding markets, fell short of expectations. They pointed out that the markets component of the National Insurance Institute will be a burden on the income sector.
“While this is a warning shot for the entire industry and we expect some caution to be factored into this outlook, JPM has been a crowd favorite on the earnings trend. We expect shares to be weak today,” the company said.
There is more competition for deposits as higher rates push customers to migrate to investments and other cash alternatives, chief executive Jamie Dimon said on a conference call, meaning the bank will “have to change savings rates”.
He said earlier in a statement that consumers are still spending a surplus of cash and that businesses have remained healthy, but he mentioned a number of uncertainties facing the economy.
“We still don’t know the final impact of the headwinds coming from geopolitical tensions including the war in Ukraine, the poor state of energy and food supplies, persistent inflation…and unprecedented quantitative tightening.”
The bank noted a modest deterioration in its macroeconomic outlook, “reflecting a mild recession in the central case”.
JPMorgan’s investment banking unit continued its poor performance in the quarter, with revenue down 57% as corporate executives curbed openings in preparation for a potential recession rather than spending on deals.
JPMorgan CFO Jeremy Barnum said one of the necessary conditions for people to make deals is “comfort” with valuations, which fell last year, and that could help in 2023 despite the weak economic outlook.
However, trading revenues gained from market volatility as investors re-placed bets to navigate the rising interest rate environment.
The bank said that while revenues from trading in fixed income markets increased by 12%, revenues from equities trading remained relatively flat.
JPMorgan’s Dimon said the acquisition of college financial planning platform Frank was a “huge mistake” after the company shut down the site.
JPMorgan is also suing the startup’s founder and another executive for creating nearly 4 million fake customer accounts.
interest rate payment
The bank’s net interest income, excluding markets, rose 72% to $20 billion, thanks to the Federal Reserve’s tightening of monetary policy by raising interest rates.
After relentlessly raising the record federal funds rate for most of the past year, the Fed has begun to ease off the pedal, acknowledging that the impact of rate hikes often takes time to ripple through the economy.
The bank said it expects net interest income of $74 billion excluding markets in 2023, against an average estimate of $75.15 billion, according to Refinitiv data.
However, Fed Chair Jerome Powell has also thrown cold water on expectations of a near-term pivot, increasing the odds of a recession.
Banks responded by allocating more money to cover bad loans and job cuts. According to reports, investment bank Goldman Sachs (GS.N) Lay off more than 3,000 employees.
JPMorgan’s Barnum said in a media call that the bank was still hiring and was “still in a growth mode.”
JPMorgan’s profit for the three months ended Dec. 31 was $11 billion, or $3.57 per share, compared to $10.4 billion, or $3.33 per share, a year earlier.
Excluding items, the company earned $3.56 per share, beating analysts’ average estimate of $3.07.
(Reporting by Nikit Nishant in Bengaluru and Saeed Azhar in New York; Editing by Soumyadib Chakrabarty, Sharon Singleton and Nick Zieminski
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