Wall Street banks’ profits slide as weaker economy looms

Profits slid at Wall Street’s biggest banks in the third quarter as they braced for a weaker economy while investment banking was hit hard as deal-making dried up, but investors saw a silver lining with some shares gaining and JPMorgan Chase beating estimates.

JPMorgan, Morgan Stanley, Citigroup and Wells Fargo’s reported earnings on Friday, showing a slide in net income after turbulent markets choked off investment banking activity and lenders set aside more rainy-day funds to cover losses from borrowers who fall behind on payments.

JPMorgan chief executive Jamie Dimon said there were “significant headwinds immediately in front of us”, noting stubbornly high inflation, higher global interest rates, the uncertain impacts of quantitative tightening, war in Ukraine and fragile state of oil supply and prices.

"While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes," he said in the bank's earnings report.

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On a conference call, Mr Dimon said US consumers remained strong and he wasn’t predicting a recession but “there are a lot of headwinds out there”.

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JPMorgan reported a 17 per cent drop in third-quarter profit to $9.74 billion (€10 billion), although that was less than had been feared.

Others reported similar slides. Morgan Stanley reported a 30 per cent slump in profit to $2.49 billion. Wells Fargo posted a 31 per cent decline to $3.53 billion. And Citi reported a 25 per cent drop to $3.5 billion.

Banks set aside more money in preparation for a hit from a potential economic slowdown. JPMorgan set aside $808 million in reserves, Citi added $370 million to reserves and Wells had a $385 million increase in the allowance for credit losses.

Chief executive of Morgan Stanley James Gorman said his firm’s performance was “resilient and balanced in an uncertain and difficult environment”.

While investment banking and investment management were affected by the market environment, he said fixed income and equity divisions “navigated challenging markets well”.

Morgan Stanley's earnings showed that investment banking revenue more than halved to $1.23 billion with declines across the bank's advisory, equity and fixed income segments.

Corporations’ interest in mergers, acquisitions and initial public offerings dried up, particularly hitting banks strong in investment banking. Global mergers and acquisitions lost ground in the third quarter with volumes in the United States plummeting nearly 63 per cent as the rising cost of debt forced companies to postpone big buyouts.

“JPMorgan delivered a solid set of results, from top to bottom,” wrote analyst at Credit Suisse Susan Roth Katzke in a note. “At least equally as important is the evidence of preparedness to manage through whatever turn the macro takes; expect the latter to be in focus.” — Reuters