JPMorgan profit drops on higher loan loss provisions as ‘headwinds’ increase

JPMorgan Chase reported a 17 per cent year-on-year drop in quarterly net income, as the bank took a $1.5bn credit loss provision amid growing worries of an economic downturn.

The largest US bank by assets said on Friday net income for the third quarter was $9.7bn, down from $11.7bn in the same period last year. The fall was less severe than analysts’ estimates of $8.9bn in net income, according to Bloomberg data.

JPMorgan’s stock rose 2 per cent in pre-market trading.

“In the US, consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” JPMorgan chief executive Jamie Dimon said in a statement.

“However, there are significant headwinds immediately in front of us — stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices,” he added.

In addition to the credit loss provisions, JPMorgan also took a $959mn loss on investments it holds.

Despite the profit drop, third-quarter revenues were up 10 per cent at $35.5bn. The bank benefited from Federal Reserve interest rate increases, with net interest income — the difference in what banks pay on deposits and what they earn from loans and other assets — of $17.6bn, up 34 per cent year on year.

JPMorgan also lifted its target for net interest income for 2022, excluding its trading division, to around $61.5bn, from more than $58bn previously.

However, investment banking revenue fell 43 per cent to $1.7bn, compared with analysts’ estimates of $1.6bn, due to the continued dealmaking slowdown.

Revenues in JPMorgan’s trading division, which has benefited from heavy activity during the recent market volatility, rose 8 per cent to $6.8bn, remaining above pre-pandemic levels. Analysts had forecast revenue to be $6.6bn. 

The bank said its common equity tier one (CET1) capital ratio at the end of the quarter was 12.5 per cent, up from 11.9 per cent three months earlier and in line with a new higher requirement. JPMorgan in July suspended its share buyback to meet the higher benchmark for financial strength.

Dimon said the bank aimed to reach its 13 per cent CET1 target in the first quarter of 2023 and that “we hope to be able to resume stock buybacks early next year”.

JPMorgan, an industry bellwether, is reporting earnings along with Morgan Stanley, Citigroup and Wells Fargo. Bank of America reports results on Monday, followed by Goldman Sachs on Tuesday.