Shares of JPMorgan (NYSE: JPM) and Morgan Stanley were down on Thursday after the two banking giants reported weaker-than-expected Q2 results.
JPMorgan Stock Hits a Fresh 52-week Low
JPMorgan reported earnings per share of $2.76 to miss on the expected $2.88. Revenue came in at $31.63 billion, again lower than the $31.95 billion consensus.
The company’s profit fell as much as 28% as the bank was forced to build large reserves of $428 million to cover bad loans. Moreover, JPMorgan shares were hit after the company suspended share buybacks.
“The U.S. economy continues to grow and both the job market and consumer spending, and their ability to spend, remain healthy,” CEO Jamie Dimon said in a press release.
“But geopolitical tension, high inflation, waning consumer confidence, the uncertainty about how high rates have to go and the never-before-seen quantitative tightening and their effects on global liquidity, combined with the war in Ukraine and its harmful effect on global energy and food prices are very likely to have negative consequences on the global economy sometime down the road,” he warned.
JPMorgan’s results came somehow in line with bearish analyst comments about potential recession impacting the banking sector. The bank’s results also suffered from a slowdown in the M&A activity, which is one of the most profitable operations on Wall Street.
JPMorgan said its investment banking revenues tumbled 54% to $1.65 billion, a big miss compared to the $1.9 billion consensus. Elsewhere, fixed income trading fees were up 15% to $4.71 billion, but again below the $5.14 billion consensus.
Shares of JPMorgan are down about 30% YTD, this way performing worse than the benchmark KBW Bank Index, which is down c20% YTD.
Morgan Stanley Follows Suit
In a similar fashion to JPMorgan, Morgan Stanley (NYSE: MS) also reported weaker-than-expected Q2 results. Revenues were reported at $13.13 billion, while Street was looking for $13.48 billion.
Earnings per share stood at $1.39, again lower than the $1.53 billion expected.
The bank’s profit fell 29% to $2.5 billion – for similar reasons as for JPMorgan. Generated revenues were down 11% to $13.13 billion with the investment banking division seeing a 55% plunge in generated revenue – $400 million below the consensus.
“Overall, the firm delivered a solid quarter in what was a more volatile market environment than we have seen for some time,” CEO James Gorman said in the release. He added that good trading results “helped partially counter weaker investment banking activity.”
Morgan Stanley’s division for equities trading raised $2.96 billion in fees while fixed income trading revenue of $2.5 billion came in much better than the $1.98 billion expected. However, the wealth management unit generated $5.74 billion in revenue to deliver a miss compared to Street’s $5.99 billion. Finally, Investment management sales were down by 17% to $1.41 billion.
“The banking calendar has quieted down a bit because people are trying to figure out whether we’re going to have this paradigm shift clarified sooner or later,” Morgan Stanley co-President Ted Pick said.
Similar to JPMorgan, Morgan Stanley shares are down about 25% since the beginning of this year.
Summary
Morgan Stanley and JPMorgan kicked off the Q2 earnings season by delivering disappointing results as Wall Street banks are forced to boost their reserves for bad loans. Investors are now shifting their focus towards Goldman Sachs and Wells Fargo to see whether they managed Q2 better than their New York-based peers.
