JP Morgan Chase sets aside funds to cover feared loan losses | Company

JP Morgan Chase, the largest US bank, saw its net profit fall 28% in the months from April to June, as it increased its reserves to cover possible defaults on customer loans in a context of concern about the economy and geopolitical tensions.

Investment banking profit for the second quarter was $8.65bn (£7.3bn), or $2.76 a share, well below $11.95bn, or $3.78 per share, over the same period a year ago. Shares of the bank fell 4.3% on Thursday, hitting a new 52-week low.

Its chief executive, Jamie Dimon, has expressed a note of caution about the direction of the US economy as fears grow that US central bankers are stepping up efforts to tackle inflation – which has hit a 40-year high from 9.1% in June – with a full point hike in interest rates later this month.

“The U.S. economy continues to grow, and the labor market and consumer spending, as well as their ability to spend, remain healthy,” he said.

“But geopolitical tensions, high inflation, falling consumer confidence, uncertainty over how rates should rise and unprecedented quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its adverse effects on global energy and food prices are very likely to have negative consequences for the global economy at some point.

Last month, Dimon warned of an approaching economic “hurricane”. On Thursday, he said he hadn’t changed his mind, but his concerns had narrowed and elements of financial dislocation had begun to show.

The US Federal Reserve’s efforts to rein in inflation could still lead to a soft or hard landing, he said.

“Rates are going up because of inflation and I think they will go up more than people think. Quantitative tightening will reduce liquidity in global markets and equity prices have fallen significantly.

JP Morgan also announced that it has temporarily suspended share buybacks as it seeks to meet new, stricter capital requirements imposed by the Federal Reserve, the US central bank.

Bank stocks have been hit hard this year, in part because investors fear that job losses that will come amid a recession will affect the ability of customers to repay their loans.

In April, JP Morgan was one of the first banks to start setting aside funds for loan losses. On Thursday, the bank said it had set aside $428 million for bad debt in the second quarter, bringing its total reserve for degraded loans to $1.1 billion.

A survey by the International Association of Credit Portfolio Managers indicated that credit defaults are on the rise in North America, Europe, Asia and Australia.

“We expect much of the next reporting season will represent a period of ‘earnings confession’ for CEOs, as analyst advice will likely be adjusted significantly lower,” wrote Scott Wren, Wells Fargo’s senior global markets strategist, in a note Thursday.

Separately on Thursday, rival US bank Morgan Stanley revealed it had missed its profit estimates for the first time in nine quarters as revenue from its investment banking unit fell 55%. Its shares have fallen 24% this year and fell another 2.4% on Wednesday in early trading.

The two banks’ poor results came as Citigroup market analysts predicted an increasingly intense response to record inflation from US central bankers.

“We now expect the Fed to offer a 100 basis point rate hike at the meeting later this month,” Citigroup’s Andrew Hollenhorst wrote in a note to clients.

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