Topline
Shares of JPMorgan Chase, the biggest U.S. bank by assets, fell on Wednesday after the firm reported earnings which showed profits declined sharply from last year due to market upheaval caused by Russia’s invasion of Ukraine, surging inflation and lasting supply chain problems.
Key Facts
While JPMorgan’s quarterly revenue came in slightly higher than expected at $31.6 billion, the bank’s first-quarter profit tanked 42% from a year earlier, to $8.28 billion, as dealmaking and trading activity slowed amid ongoing uncertainty in markets.
Another warning sign for investors was that JPMorgan is building up its credit reserves—increasing provisions for loan losses to $1.5 billion—as it unwinds its exposure to Russia and faces “downside risks due to high inflation and the war in Ukraine.”
The bank said profits were impacted by a $902 million charge tied to building credit reserves for anticipated loan losses, as well as $524 million in losses from market disruptions caused by Russia’s invasion of Ukraine.
With JPMorgan kicking off earnings season, Wall Street investors will likely be worried about similar trends in upcoming bank results: “There are a lot of moving pieces in this report,” but the “negative” credit news “will likely cause a bit of anxiety for the whole group,” says Vital Knowledge founder Adam Crisafulli.
Some bank stocks moved lower on the news Wednesday: JPMorgan fell roughly 2%, while Citigroup and Wells Fargo also moved slightly lower but Goldman Sachs and Morgan Stanley traded flat.
While bank shares are expected to benefit from rising interest rates—with the Federal Reserve planning several big increases this year, they could also take a hit from rising recession fears, such as the recent inversion of the yield curve.
Crucial Quote:
“We remain optimistic on the economy, at least for the short term — consumer and business balance sheets as well as consumer spending remain at healthy levels — but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,” JPMorgan Chase’s billionaire CEO, Jamie Dimon, said in a statement.
What To Watch For:
A host of other big banks—Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo—will all report earnings on Thursday.
Tangent:
Airline stocks jumped on Wednesday morning after optimistic quarterly earnings from Delta, shares of which rose 3.6%. The company expects to return to profitability this quarter after bookings and fares jumped amid an “all time high” in demand. United Airlines rose nearly 4%, while American jumped 6.6%.
Further Reading:
Wall Street Banks Could Lose Billions In Russia—Here’s How Much Exposure They Have (Forbes)
Major Bank Is First To Forecast A Recession—More Could Follow (Forbes)
Experts Believe Inflation May Have ‘Peaked,’ But Prices Will Remain Elevated This Year (Forbes)
Federal Reserve Hints At Bigger Rate Hikes Ahead, Outlines Plan To Shrink Balance Sheet (Forbes)