Déjà Vu

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What's going on?

US banking powerhouse JPMorgan posted disappointing quarterly results on Thursday.

What does this mean?

During the height of the pandemic, JPMorgan was forced to build up a pile of funds – known as “loan loss reserves” – that would protect its bottom line if customers couldn’t pay off their debts. But after finally releasing those reserves into the business last year, the bank’s found itself right back where it started: it’s been forced to build them up again in case of a recession, adding another $428 million to the total last quarter. And with interest rate hikes dragging on both markets and corporate dealmaking, its faltering investment banking business added insult to injury.

Of course, those hikes aren’t all bad: JPMorgan made 19% more net interest income last quarter than it did the same time last year, while market volatility boosted its trading business. But the bank’s overall profit still fell 28%, and it also suspended share buybacks to save some cash for incoming regulations. That was the final nail in the coffin: investors sent its stock down 5% (tweet this).

Why should I care?

Zooming in: Nice try, JP Morgan.
Even JPMorgan’s interest income could take a hit from here on out. See, big banks typically raise lending rates much quicker than they raise savings rates, meaning they can profit from a bigger margin for longer. But cash-strapped customers aren’t suckers, and they’re increasingly moving their money to smaller lenders that pay savers more. So if JPMorgan wants to hold onto them, it might need to start offering a better deal – and fast.

The bigger picture: Brace for impact.
Morgan Stanley let investors down on Thursday too, with its profit plunging by 29%. Like JPMorgan, its investment banking revenue collapsed, but its flagship wealth management business – which looks after rich people’s cash in exchange for a fee – struggled too. So with retail banking, investment banking, and wealth management all looking delicate, this doesn’t bode well for the rest of the sector this earnings season.

Originally posted as part of the Finimize daily email.

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