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JPMorgan Chase & Co. said Wednesday its first-quarter net income fell below Wall Street’s target as the megabank boosted reserves to brace for inflation and the war in Ukraine amid a sharp drop in deal activity.
JPMorgan Chase shares
JPM,
fell 3.4%, weighing on the broader market. The Dow Jones Industrial Average
DJIA,
rose 0.7%.
Chief Executive Jamie Dimon warned of more disruptions in financial markets amid interest rate hikes by the U.S. Federal Reserve, supply chain challenges, inflation, big swings in commodity prices, a strong job market, and the war in Ukraine.
“I cannot foresee any scenario at all where you’re not going to have a lot of volatility in markets going forward,” Dimon told analysts on the company’s quarterly conference call. “There’s almost no chance you won’t have volatile markets. That could be good or bad for trading but there’s almost no chance it won’t happen and I think people should be prepared for that.”
JPMorgan
JPM,
said its first-quarter earnings fell to $8.28 billion, or $2.63 a share, from $14.3 billion, or $4.50 a share, in the year-ago quarter.
The drop was driven by a net credit-reserve build of $902 million to reflect the increased probability of downside risk due to high inflation and the war in Ukraine, as well as its Russia exposure. In the year-ago period, JPMorgan Chase benefited from a net credit-reserve release of $5.2 billion.
Revenue in the latest quarter dropped to $30.7 billion from $32.27 billion.
Analysts expected JPMorgan to earn $2.72 a share on revenue of $30.59 billion, according to a FactSet survey.
“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,” Dimon said in a prepared statement.
JPMorgan Chase said it OK’d a new $30 billion share buyback.
Despite robust jobs numbers this year, the economic picture has been mixed amid moves to raise interest rates by the Federal Reserve to tame inflation, and as banks recalibrated their overseas operations to inflict economic sanctions on Russia.
JPMorgan Chase’s investment banking fees fell 31% amid lower equity and debt underwriting volumes. Markets revenue dropped 3% from a record in the year-ago period. Commercial banking loans rose 2%, with the bank seeing a rise in new loan demand.
Commenting on the war in Ukraine, Dimon said armed conflicts don’t necessarily affect the global economy in the short run, but the current situation could prove to be an exception given the complex sanctions against Russia.
“Wars have unpredictable outcomes,” Dimon said. “I hope those things disappear and go away, we have a soft landing and the war is resolved. I just wouldn’t bet on all of that.”
Another impact of the war in Ukraine was wild swings in commodity prices. JPMorgan Chase was one of the main banks cited by a Wall Street Journal report as being involved in margin call losses in the nickel market last month.
Bankers sought to reach an agreement with Tsingshan Holding Group, according to reports. The Chinese steel and nickel producer’s trades on the London Metal Exchange contributed to a spike in prices and led to a trading halt and the cancellation of eight hours’ worth of transactions.
On the conference call on Wednesday, JPMorgan CFO Jeremy Barnum said the bank was hedging positions for clients closely linked to nickel producers, who generally sell forward a portion of the coming year’s production.
The extreme price movements created margin calls, which JPMorgan Chase and other banks are addressing, he said.
Because the costs were counterparty-related, they appeared in JPMorgan Chase’s credit adjustments and other line, where they contributed about $120 million to the reported loss. They also drove an increase in risk-related assets in the bank’s markets unit.
See: The nickel market tumult: What investors need to know
Given the adjustments in rate hikes by the U.S. Federal Reserve since JPMorgan issued guidance three months ago, analysts had hoped for a revised forecast on net interest income (NII).
CFO Barnum said the bank will issue a more complete view in its upcoming investor day on May 23. He reiterated the bank’s 2022 view for at least $53 billion in NII excluding its markets unit, but said it could trend higher, possibly by $2 billion.
“We don’t want to get too precise at this point,” Barnum said on the bank’s NII view. “We want to run our bottoms-up process. There have been very big moves and we want to get it right. And so we’ll give more detail about that at investor day.”
Before Wednesday’s trades, JPMorgan Chase shares had lost 16.9% so far this year and underperformed the market. The Dow Jones Industrial Average
DJIA,
is down 5.8% in the period.
Bank stocks have been lackluster as investors sifted through a steady stream of mostly negative news headlines, with the Financial Select SPDR Fund XLF, -1.09% down 4.5% to date in 2022.
Analysts had reduced their first-quarter earnings target for JPMorgan to $2.72 a share on Wednesday from $2.81 on March 14 and $2.95 a share in early January.
JPMorgan Chase said Monday the impact of its Russia operations could affect its business by $1 billion over time.
