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JP Morgan

J.P. Morgan Suspends Share Buybacks and Misses on Earnings Report

Jul 14, 2022 | About 3 minutes

Ticker Symbol: JPM

JPMorgan, the largest U.S. banking institution by assets, announced its second-quarter earnings today. In addition to announcing the earnings report, management also announced that the company would be suspending its share buy-back program after a new stress test from regulators pushed the bank to shore up capital. Shares were down 2.5% in pre-market trading.  The Chief Executive Officer of the bank, Jamie Dimon, also highlighted that elevated inflation and weakening consumer confidence could hurt the U.S. economy in the near term.

The bank reported earnings per share in the quarter of $2.76 per share versus the $2.88 expected by analysts. Earnings were impacted by a $428 million bad-loan reserve the bank built during the quarter. Revenue also came in a bit short at $31.63 billion against Wall Street’s expectations of $31.95 billion. Despite the miss, revenue was still up 1% year over year as higher interest rates boosted net interest income.

The company, which reported numbers that largely missed investor estimates for its first quarter’s earnings report as well, had increased its outlook on an investor day in May based on rising global interest rates, which is generally positive for financial institutions. The company had also pledged to increase the return on tangible equity to 17%, driven largely by a focus on its lending business.

Banks with a large lending business earn higher interest income during periods of rising rates, while they keep interest expense under control due to near zero interest paid in deposit accounts. This increase in net interest income allows companies to boost shareholder returns. The bank will earn a higher net income due to the combination of rising rates and higher loan values. Meanwhile, management also indicated that costs would remain unchanged for the fiscal year at $77 billion.

J.P. Morgan’s investment banking division missed estimates as the heightened volatility in global capital markets made deal-making significantly more challenging. Net revenue was down 61% while total net income was down 26%. Fees declined by 54% at the bank’s advisory services business. Fixed income, commodities, and currencies trading were also lower while equity trading revenue only increased by 15%. Analysts had been expecting a decline of 46.5% in advisory fees and an increase of 17% in equity trading, respectively.

Assets under management at the asset and wealth management division declined by 8% as a dip in markets hurt the portfolios of the bank’s clients. Net income at the division also fell by 13% as rising structural costs due to higher compensation impacted margins. Still, net revenue was up 5% as deposits, lending, and margin growth increased. The AWM division had $2.7 trillion in assets under management as of the end of June.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.