San Francisco Frontiers - Large US banks report higher profits despite recent industry turmoil

But JPMorgan's better-than-expected results came as it warned again of a potential economic downturn while adding $1.1 billion in reserves in case of bad loans.

The results lifted banking shares early Friday, in the closely-watched sector after the swift failures of Silicon Valley Bank and Signature Bank in March.

JPMorgan, the biggest US lender in terms of assets, reported a 52 percent surge in profits to $12.6 billion. This was boosted by record revenues of $38.3 billion, up 25 percent from the year-ago level.

But the additional reserves were taken due to "a deterioration in the weighted-average economic outlook" and "an increased probability of a moderate recession due to tightening financial conditions," the bank said in an earnings release.

Chief Executive Jamie Dimon, speaking on a conference call with reporters, said US consumers remain "rather healthy," but that the economy faced challenges.

These include lingering inflation, the Federal Reserve's tightening policies and fallout from war in Ukraine.

"We're going to eventually have a recession, but that may be pushed off for a little bit," Dimon said.

- Deposits coming and going -

JPMorgan's results were boosted by much higher net interest income (NII), as the major US bank benefited from a rising interest rate environment that enabled it to charge more for loans.

Recent banking industry turmoil following the collapse of SVB raised worries about a flight of deposits, but that was seen as more of a concern for midsized lenders.

JPMorgan Chase reported a drop in deposits compared with the year-ago period, but an uptick from the prior quarter.

In fact, JPMorgan sharply increased its 2023 forecast for NII to a total of $81 billion, up $7 billion from its prior forecast.

Chief Financial Officer Jeremy Barnum said this outlook partly reflected expectations on Fed policy, including talk of an interest rate cut later this year that removed "a little bit of pressure" on banks to raise interest to depositors.

Executives underscored, however, that they expect lower NII in 2024 and beyond.

As the SVB crisis played out, JPMorgan saw an influx of deposits. But executives do not expect those to remain for the long-term.

Results were mixed in JPMorgan's corporate and investment banking business amid a dearth of major mergers and a lackluster trading environment.

In the news release, Dimon added that the US economy remained on "generally healthy footing" but the banking industry turmoil added to economic headwinds.

"The banking situation is distinct from 2008 as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending," he said.

While the bank hopes the clouds will clear, JPMorgan "is prepared for a broad range of outcomes," Dimon stressed.

Shares of JPMorgan gained 7.2 percent to $138.25 on Friday morning.

Citigroup also climbed, as investors breathed a sigh of relief at no obvious red flags in the heavily-scrutinized sector.

Shares of a fourth US bank, the mid-sized PNC Financial Services Group, fell two percent soon after trading started.

K.Gray--SFF