Jan 13 (Reuters) – JPMorgan Chase & Co ( JPM.N ), the biggest U.S. lender, said on Friday it had set aside $1.4 billion in anticipation of a mild recession, even as it beat quarterly profit forecasts. strong performance in the trading division.
JPMorgan and other banks have started reporting quarterly earnings for corporate America, which are expected to fall for the first time since the third quarter of 2020. Shares were up 2.5% at $143.04 in midday trading.
UBS analysts said in a note that JPMorgan’s net interest income (NII) – the money the bank earns from interest payments – was below guidance of $74 billion excluding markets. They indicated that the market component of NII would be a drag on the revenue segment.
“While this is a warning for the entire industry and we expect some conservatism to be factored into this outlook, JPM was the crowd favorite on earnings. We expect the stock to underperform today,” he said.
Chief executive Jamie Dimon said on a conference call that there is more competition for deposits as higher rates drive customers to move to investments and other cash alternatives, meaning the bank “will have to change deposit rates.”
In an earlier statement, he said consumers were still spending excess cash and businesses remained healthy, but he listed a number of uncertainties facing the economy.
“We still don’t know the final impact of the headwinds from geopolitical tensions, including the war in Ukraine, the fragile state of energy and food supplies, persistent inflation … and unprecedented quantitative tightening.”
The bank noted a modest deterioration in its macroeconomic outlook, “reflecting a moderate slowdown in the central position”.
JPMorgan’s investment banking unit continued to underperform in the quarter, with revenue falling 57% as corporate executives battened down the hatches to prepare for a potential downturn instead of spending on deals.
JPMorgan Chief Financial Officer Jeremy Barnum said one of the prerequisites for people to do deals is to be “comfortable” with valuations falling last year, which could help in 2023 despite a weak economic outlook.
However, trading returns were derived from market volatility as investors changed bets to move in a high interest rate environment.
Equity trading revenues were relatively flat, while fixed income trading revenues rose 12%, the bank said.
JPMorgan’s Dimon also said the acquisition of college financial planning platform Frank after the firm shuttered its website was a “huge mistake.”
JPMorgan is also suing the startup’s founder and another executive for creating nearly 4 million fake customer accounts.
The bank’s net interest income excluding markets increased by 72% to $20 billion thanks to the US Federal Reserve’s tightening of monetary policy with interest rate hikes.
After relentlessly raising the federal funds rate for most of last year, the Fed has begun to ease 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, compared with an average of $75.15 billion, according to Refinitiv data.
Fed Chairman Jerome Powell also threw cold water on expectations of a near-term turnaround, raising the prospect of a recession.
Banks responded by releasing more funds to pay off bad loans and cut jobs. Investment bank Goldman Sachs ( GS.N ) is reportedly laying off more than 3,000 employees.
JPMorgan’s Barnum called the media, saying the bank is still hiring and is “still in growth mode.”
JPMorgan’s profit for the three months ended Dec. 31 was $11 billion, or $3.57 per share, compared with $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 Niket Nishant in Bengaluru and Saeed Azhar in New York; Edited by Saumyadeb Chakrabarty, Sharon Singleton, and Nick Zieminski
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