JPMorgan Chase's third-quarter results beat expectations Friday, but the bank is sending signals that tougher economic times could be ahead, particularly for lower-income consumers and small businesses.
America's largest bank by assets allocated $808 million to cover loans that could sour, almost double the amount it set aside last quarter.
Median deposits at the bank declined year over year, and CEO Jamie Dimon said lower-income customers are on track to run out of the excess deposits they squirreled away during the pandemic by the middle of next year. At the same time, JPMorgan executives said the bank's small business customers have become more aware of the risks posed by the economy.
The emphasis on downside risk comes at a time when many business leaders have resigned themselves to the prospect of a recession in the U.S. in the coming months. JPMorgan cited a weakening economic outlook as one reason it added to its allowance for loan losses for the third straight quarter. Dimon said he believes the intensity of a potential recession ranges from mild to more severe.
"There are significant headwinds immediately in front of us," Dimon said, pointing to high inflation, the yet-to-be-known impact of large rate hikes by the Federal Reserve, the war in Ukraine and ever-changing oil prices.
JPMorgan reported net income of $9.7 billion, a 17% decline from the third quarter of last year, when robust investment banking revenue helped boost yearly profit to the highest level on record. Also weighing on net income were $959 million in securities losses, the result of selling U.S. Treasuries and mortgage securities.
Earnings per share totaled $3.12, well above the $2.90 expected by analysts polled by FactSet Research Systems. Investors embraced the earnings report, boosting shares to 2.6% to $112.15.
"The biggest elephant in the room is the uncertainty in the near term, and no one knows how it'll play out," said Michael McTamney, senior vice president at DBRS Morningstar. "But banks continue to chug along, and they're in very good shape."
While consumers remain healthy, according to JPMorgan executives, a potential sign of weakness is developing in the amount of cash they keep at the bank.
Deposits in JPMorgan's consumer and community banking segment, which includes everyday customers, fell to $1.2 trillion, its lowest level this year. Overall deposits fell about 3% from the second quarter, to $2.4 trillion.
The bank's small-business customers, meanwhile, are growing wary.
"Small-business owners are increasingly focused on the risks and the economic outlook," JPMorgan Chief Financial Officer Jeremy Barnum said on a call with analysts.
Still, loan growth at the bank remains strong. Total loans increased 7% from a year ago, driven by a 19% jump in credit card spending and a 10% increase in wholesale loans. JPMorgan cited continued loan growth as another reason for adding to its reserves.
Revenue in the bank's investment banking arm fell by 43%. The bank said last month that it would
Dimon said the bank hopes to resume share repurchases,
JPMorgan averaged about $2.2 billion in buybacks per quarter before the suspension.
Executives said the bank is on pace to reach its common equity Tier 1 ratio of 12.5% in the fourth quarter and 13% in the first quarter of 2023.
Noninterest expenses increased 12%, mostly driven by higher compensation costs, the bank said. Investors have been focused on the firm's increasing outlays since bank executives said earlier this year they expected expenses to rise 8.6% in 2022.
