JPMorgan Takes Half-Billion Russia Loss, Mortgage Volumes Plunge

JPMorgan delivered mixed first quarter results on Wednesday, as earnings season kicked off in the US.

Adjusted revenue of $31.59 billion was a slight beat, but EPS of $2.63 was a miss and IB fell short.

Jamie Dimon described the bank’s performance as “healthy.” A net $902 million reserve build was a $0.23 drag on earnings. If you’re looking for a culprit in explaining the 42% YoY drop in net income, that was it. Bank results were padded by reserve releases in the aftermath of the pandemic. That tailwind has now dissipated. But it’s not merely a matter of normalization and caution. The war is taking a toll.

The total provision for credit losses was $1.46 billion, more than double estimates. The bank attributed the reserve build to the necessity of “increasing the probability of downside risks due to high inflation and the war in Ukraine.” JPMorgan was also compelled to account for Russia-related exposure in CIB.

Turning quickly to that, the bank’s markets performance included a $524 million loss from spread widening and “adjustments” tied to higher commodities exposures and “markdowns of derivatives receivables from Russia-associated counterparties.” The figure (below) illustrates that loss.

FICC revenue was $5.7 billion, down just 1% YoY. Equities revenue fell 7% versus Q1 2021.

JPMorgan was, you’re reminded, embroiled in the LME nickel squeeze. The bank was “Big Shot”‘s largest counterparty.

In IB, revenue fell sharply. Fees were 31% lower compared to the same quarter last year, as equity and debt underwriting cooled (figure below). Advisory held up.

Ultimately, CIB net income was $1.54 billion lower versus a year ago, a 26% decline.

In Consumer, average loans fell 1% on-year and 2% sequentially. Deposits jumped 18%, and card spend rose 21% as travel and dining attempted a comeback. Card balances are still below pre-COVID levels, Dimon said.

Notably, originations in Home Lending dropped 37% (figure below). There’s no mystery there. Rising rates are starting to bite. The sequential decline was in excess of 40%.

Auto loan originations dropped 25%, which the bank blamed on supply constraints.

Dimon, who last week delivered a sweeping critique of the prevailing geopolitical and macro environment in his annual shareholder tome, adopted a somewhat cautious cadence.

“We remain optimistic on the economy, at least for the short term,” he said Wednesday, noting that for now, consumer and business balance sheets are healthy. That said, he warned of “significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine.”

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7 thoughts on “JPMorgan Takes Half-Billion Russia Loss, Mortgage Volumes Plunge

  1. Jamie Dimon never lets an opportunity to over-reserve go to waste— he likes having the ammo to smooth future earnings.
    Has he ever under-reserved?

  2. I found the consumer lending figures the most interesting. I’ll await more results, especially from the regionals, before declaring the notion that higher rates are good for bank earnings to be dead and buried.

    Though there’ll be no surprise when some Wall Street pundits try to assert that JPM’s lending numbers confirm that consumers are “flush with cash” and have no need to borrow.

    1. My observation is that the yield curve and credit conditions matter more than the absolute levels of rates. Credit conditions and economy are pretty good, however, the yield curve is mainly flat which is the first condition for banks to come under pressure. If credit conditions deteriorate that is step 2. Final nail in the coffin is an outright economic downturn. We are only at step 1 with a mainly flat yield curve- and the curve for the moment is steep in the very short end (as Powell continues to point out). The banks probably have another year before things really bite.

      1. RIA – good point. The key to the old street “saw” that higher rats are good for bank earnings was based upon the idea that banks would actually step up their lending. That increasingly looks like a quaint old notion, akin to the Phillips and Laffer curves.

        That’s partly due to all of those well-funded fintechs out there skimming off the most lucrative lending businesses.

  3. Good article and good commentary- The most interesting question is this for banks- if the fintechs get in trouble will the fed let them die?

    1. If I had to guess, it would be Wells Fargo. Those folks are down there with Credit Suisse and HSBC selling ethics for pennies.

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