Wall Street weakened after JPMorgan Chase and Morgan Stanley reported a bigger-than-expected drop in second-quarter profit, signaling the end of the industry’s pandemic-era earnings boom.
Wall Street banks have earned record fees working on mergers and acquisitions, public listings and special-purpose buyouts during the coronavirus pandemic.
But the pipeline of businesses, particularly the flow of initial public offerings, has slowed markedly since the start of the year as investors have shied away from Spacs and money-losing startups.
It was the first earnings miss from JPMorgan, the largest U.S. lender by assets. Morgan Stanley From the beginning of 2020.
“In terms of perspective [for investment banking]While our existing pipeline is healthy, if current headwinds continue, the deal may be difficult to reverse. JPMorgan Chief Financial Officer Jeremy Barnum said in a telephone call with analysts.
Banks are also struggling with a difficult regulatory environment. JPMorgan said it had “temporarily suspended share buybacks” after the Federal Reserve struck with a blow last month. higher capital requirement.
And Morgan Stanley said it will pay $200 million in fines to US regulators in connection with a federal investigation into the use of unapproved communications channels by its employees. JPMorgan has been paid fines of this amount to settle a similar case.
JPMorgan reported second-quarter total net income of $8.2 billion, or $2.76 per share, down nearly 30 percent from $11.5 billion, or $3.78 per share, in the same period last year. Analysts had forecast quarterly net income of $8.5 billion, or $2.90 per share, according to consensus data compiled by Bloomberg.
Net income attributable to shareholders at Morgan Stanley also fell 30 percent to $2.4 billion, missing estimates of $2.75 billion.
Both banks suffered from bigger-than-expected declines in investment banking revenue, as well as losses on loans they have yet to sell to third parties.
The weak reports set a gloomy tone for US banks’ earnings season, with Citigroup due to post earnings on Friday, followed by Goldman Sachs and Bank of America on Monday.
JPMorgan shares were down about 4.5 percent in afternoon trading in New York, while Morgan Stanley was down 0.6 percent. Goldman fell about 3 percent and BofA fell 2.8 percent.
During the quarter, JPMorgan and Morgan Stanley took a hit as they failed to sell the debt they had written to finance their leveraged buyouts by investors.
JPMorgan said it took a $257 million discount on loans held for sale, while Morgan Stanley said it wrote down $282 million to market.
For JPMorgan, a poor result in investment banking boosted the amount of money it makes from lending, which has risen sharply as the Fed raises 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’s up 19 percent year-on-year, the biggest increase in more than a decade.
JPMorgan raised its net interest income target for 2022 to above $58 billion, excluding market activity. 56 billion dollars before.
Analysts at Wells Fargo said JPMorgan’s divestment reflected Wall Street banking business being partially diluted by Main Street banking power.
JPMorgan and Morgan Stanley reported gains in their trading divisions as investors traded heavily amid volatile financial markets.
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