JPMorgan Chase and Morgan Stanley cast a shadow over Wall Street after reporting a larger-than-expected drop in second-quarter earnings signaling the end of the industry’s pandemic-era profit boom.
Wall Street banks have amassed record fees during the coronavirus pandemic by working on a deluge of mergers and acquisitions, public listings and special purpose buyouts.
But the business pipeline, particularly the flow of initial public offerings, has slowed significantly since the start of the year as investors shy away from Spacs and money-losing startups.
This was the first lost profit from JPMorgan – the largest US lender by assets and industry leader – or Morgan Stanley Since the beginning of 2020.
“In terms of the look [for investment banking]While our current pipeline remains intact, turning the deal backlog around could prove difficult if current headwinds persist.” JP Morgan CFO Jeremy Barnum said in a call with analysts.
Banks are also dealing with a challenging regulatory environment. JPMorgan said it had “paused share buybacks” after the Federal Reserve last month hit it with Higher capital requirements.
Morgan Stanley has indicated that it expects to pay a $200 million fine to US regulators in connection with a federal investigation into its employees’ use of unapproved communication channels. JP Morgan Pay This amount in fines to solve a similar case.
JPMorgan reported second-quarter gross net income of $8.2 billion, or $2.76 per share, down about 30 percent from $11.5 billion, or $3.78 per share, in the same period last year. Analysts expected quarterly net income of $8.5 billion, or $2.90 per share, according to consensus data compiled by Bloomberg.
At Morgan Stanley, net income applicable to shareholders also fell 30 percent to $2.4 billion, below estimates of $2.75 billion.
Both banks suffered larger declines in investment banking revenue than analysts had expected, as well as losses on loans they could not yet sell to third parties.
The downbeat reports set a bleak tone for US bank earnings seasons, with Citigroup due to publish earnings on Friday followed by Goldman Sachs and Bank of America on Monday.
JPMorgan shares were down about 4.5 percent in early afternoon trading in New York, while Morgan Stanley shares were down 0.6 percent. Goldman Sachs shares fell about 3 percent and Bank of America fell by 2.8 percent.
During the quarter, JPMorgan and Morgan Stanley took a hit because they were unable to sell the debt they had pledged to fund investors’ leveraged purchases.
JPMorgan said it took $257 million in writedowns on loans for sale, while Morgan Stanley said it incurred $282 million in market losses.
For JPMorgan, the poor outcome in investment banking has increased the amount of money it generates from making loans, which has risen sharply as the Federal Reserve increases interest rates.
The bank reported net interest income — the difference between what it pays on deposits and what it earns on loans and other assets — of $15.1 billion. That was 19 percent higher year on year, the largest increase of its kind in more than a decade.
JPMorgan raised its target for net interest income for 2022, excluding its markets business, to more than $58 billion, from more than Previously $56 billion.
Analysts at Wells Fargo said the JPMorgan profit loss reflects Wall Street banking that has been mitigated in part by Main Street banking strength.
JPMorgan and Morgan Stanley reported a jump in revenue in their trading divisions as investors traded heavily amid volatile financial markets.
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