JPMorgan Chase & Co temporarily suspended its share buyback after posting lower than Analysts’ Estimated Second Quarterly Results And Driving The Stocks To Close 5.1 % Lower.
What is this all About?
Chief Executive Officer Jamie Demon said Thursday that a buyback pause was necessary as a higher capital requirement was needed to serve the clients and community more flexibly.
The results showed how Wall Street has performed in the turbulent three months characterized by revised outlooks forced by the economy. As per Bloomberg News, Morgan Stanley also missed its revenue target, with its investment banking division revenue slumping 55%. Last month, Demon warned of an economic hurricane after the Fed faced challenges in reining inflation.
JPMorgan set aside another $248 million towards provisions for potentially bad loans reflecting deterioration in the economic outlook. This step is a reversal from last year when its results were padded with a $3 billion reserve.
Investment banking fee income declined 54%, more than analysts’ estimate of 47%. The unit was also impacted by $257 million marked down in the bank’s bridge book as per earning statements.
In a conference call with journalists, Chief Financial officer Jeremy Barnum said June was a slow month for the Capital market business.
The New York-based bank’s trading revenue increased to $7.8 billion, up by 15% and lower than the 17% estimates by analysts. A note to employees by President Daniel Pinto and accessed by Bloomberg News noted the investors evaluated the impact of the Federal Reserve rate hike resulting in the trading markets getting whipsawed.
Though the results of JPMorgan were lower than estimates, the emerging markets, equities, and strength in currencies drove the firm to post the second best QTR 2 trading earnings.
JPMorgan shares, down 33% in 2022, saw the steepest intraday drop in New York Thursday to $106.43, down 4.9%.
Regulators have set the tier 1 capital adequacy ratio at 12.5% for the first quarter of 2023, after a strict stress test result. This is up from 11.2% and 11.7% in June and two months earlier, respectively.
The pause in buyback will allow JPMorgan to reach 13.2% tier 1 capital comfortably by 2023 March and meet the regulator’s bar. But this will at the cost of putting the money back with investors. Last year it had averaged $2.2 billion worth of buybacks apart from the $3 billion dividend payout in a quarter.
The net income fell to $8.6 billion or $2.76 per share, declining 28%. Analysts had estimated $8.9 billion. Noninterest expenses rose to $18.7 billion, up 6% but lower than analysts’ expectations. The cost for JPMorgan became a focal point.
The net interest income grew 19% on high-interest rates and loan books in the second quarter. Analysts had expected a 19% growth for the key revenue source for the bank. JPMorgan expects a net interest income of $58 billion in 2022, the third revision in estimates this year.
