Jamie Dimon cautious on economy as JP Morgan profit falls

Largest US bank’s second-quarter profit fell 28% to $8.6bn

JP Morgan's shares slid more than 4 per cent as it recorded $1.1 billion in provision for credit losses, compared to last year, when it released $3bn from its reserves. Reuters

JP Morgan Chase reported a bigger-than-expected 28 per cent fall in second-quarter profit on Thursday as the largest US bank set aside more money to cover potential losses in the face of growing risks of a recession.

The bank's shares slid more than 4 per cent as it recorded $1.1 billion in provision for credit losses, compared to last year, when it released $3bn from its reserves.

The four biggest US banks are expected to record $3.5bn of loss provisions for the quarter, as they brace for a sharp economic slowdown with the US Federal Reserve aggressively raising interest rates to control runaway inflation.

Chief executive Jamie Dimon flagged various concerns including geopolitical tension, high inflation, waning consumer confidence and the "never-before-seen" quantitative tightening as threats to global economic growth.

Closer to home, however, the economy continues to grow and both the job market and consumer spending remain healthy, Mr Dimon said.

The bank posted a profit of $8.6bn, or $2.76 per share, missing the average analyst expectation of $2.88 per share, said Refinitiv.

Other large US banks including Citigroup, Wells Fargo and Morgan Stanley will report results this week, while Goldman Sachs and Bank of America will round out the big bank earnings season next week.

Analysts have forecast a sharp decline in second-quarter earnings from a year ago, when banks released loan loss reserves and benefited from a boom in deal-making.

The company also temporarily suspended its share buyback to further shore up its capital levels.

JP Morgan's earnings hurt the broader market with US stock index futures extending losses after they were released.

Investment banking revenue fell 61 per cent to $1.4bn, mainly hurt by lower fees from deals and debt and equity issuances.

As is the case with rivals Goldman Sachs and Morgan Stanley, JP Morgan last year rode the deal-making wave and advised on several major business combinations, underwrote some of the biggest stock market flotations and helped to put together deals involving special purpose acquisition companies, or SPACs.

However, Russia's invasion of Ukraine in February and fears around an economic recession dealt a blow to merger and acquisition activity in 2022. The value of announced deals globally in the second quarter dropped 25.5 per cent year-on-year to $1 trillion, according to Dealogic data.

M&A activity in the US also plunged 40 per cent to $456bn in the second quarter.

JP Morgan reported net revenue of $31.6bn, up 1 per cent, while net interest income was $15.2bn, up 19 per cent in the quarter.