The second-quarter earnings season kicked off today with JPMorgan Chase & Co., which reported that profits in the quarter fell 28% from a year earlier.
The financial services company said net income was $8.6 billion, up 4% from $8.28 billion in the first quarter but down 28% from $11.94 billion in the second quarter of 2021. The second-quarter results were driven predominantly by a buildup of net credit reserves of $428 million, compared to a net credit release of $3 billion last year.
Earnings in the quarter equaled $2.76 per share, below analyst expectations of $2.88 per share based on a survey conducted by Refinitiv Financial Solutions.
Managed revenue rose 1% to $31.63 billion, in part due to higher interest rates, but still below analysts’ expectations.
Jamie Dimon, JP Morgan Chase’s chairman and CEO, said the company is dealing with “two conflicting factors, operating on different timetables,” in the global economy
“The U.S. economy continues to grow, and both the job market and consumer spending, and their ability to spend, remain healthy,” Dimon said. “But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening (by the Federal Reserve) and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices, are very likely to have negative consequences on the global economy sometime down the road.”
Despite all that uncertainty, the company is “prepared for whatever happens and will continue to serve clients even in the toughest of times,” he added.
During a conference call and webcast with analysts and news media today, Dimon said the company has always managed through economic storms while continuing to serve its customers and clients.
He also railed against the federally required annual bank stress tests, conducted by the Federal Reserve, which JP Morgan Chase passed in June but as a result will be required to retain additional capital reserves, known as stress capital buffers or SCB.
The company said in late June that its new SCB requirement is 4%, from from 3.2%, and that its Standardized Common Equity Tier 1 capital ratio requirement including regulatory buffers is 12%, up 11.2%. The Federal Reserve will provide the company with its final SCB requirement by Aug. 31, and that requirement will become effective on Oct. 1, JPMorgan said.
The additional reserves, he said, will in part likely “drive down” the number of mortgage loans the bank originates, he said.
“It hurts the U.S. economy and it hurts this country,” he said. “It’s especially bad for lower-income mortgages. … We’ll originate, but the balance on the books will probably come down.”
That statement follows the company’s decision last month to lay off some employees and reassign others in its mortgage business. At the time, the company cited inflation and rising mortgage rates for slowing the U.S. housing market.
The decision affected about 1,000 employees of Chase Home Lending, including about half that were expected to be moved to different divisions within the bank.
In its second-quarter report, the company reported originating $21.9 billion in mortgage loans, down 11% from $24.7 billion in the first quarter and down 44.7% from $39.6 billion in the second quarter of last year.
“As a result of the recent stress tests and the already scheduled GSIB (globally systemic banks) ncrease, we will build capital and continue to effectively and actively manage our RWA (risk-weighted assets),” Dimon said. “In order to quickly meet the higher requirements, we have temporarily suspended share buybacks, which will allow us maximum flexibility to best serve our customers, clients, and community through a broad range of economic environments.”
