JPMorgan Stock Tumbles After Lender Halts Buybacks and Posts Earnings Miss

JPMorgan Stock Tumbles After Lender Halts Buybacks and Posts Earnings Miss

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Analysts expect JPMorgan Chase’s earnings to drop nearly 25% year over year.

David Paul Morris/Bloomberg

Bank earnings season got off to a rocky start Thursday after


JPMorgan Chase
’s
second-quarter results missed analysts’ estimates. Making matters worse, the lender said it was temporarily halting share repurchases.

Shares of


JPM

organ (ticker: JPM) fell more than 2% in premarket trading.

Expectations for the banking sector were already muddled going into earnings, with analysts projecting banks to post an increase in net interest income due to rising rates while also preparing themselves for a downturn.

That was particularly true in the case of JPMorgan, which saw a 19% year-over-year increase in net interest income. But Wall Street was more worried about the measures the bank is taking to ready itself for a recession.

While JPMorgan easily passed the Fed’s annual stress test, it had to increase its stress capital buffer to be able to better operate if the economy turns south.

“In order to quickly meet the higher requirements, we have temporarily suspended share buybacks which will allow us maximum flexibility to best serve our customers, clients and community through a broad range of economic environments,” Jamie Dimon, chief executive at JPMorgan, said Thursday.

That and the earnings miss were more than enough to give Wall Street pause.

Analysts surveyed by FactSet expected the bank to post second-quarter earnings of $2.89 per share, down nearly 25% from a year ago. Revenue was projected to creep up by 4% to $31.8 billion. Instead, JPMorgan posted earnings of $2.76 on revenue of $30.7 billion. Net income fell by 28% from the year-ago quarter as the bank build its reserves by $428 million in anticipate of soured loans. The bank also saw $657 million in net charge-offs.

JPMorgan has been one of the harder-hit bank stocks this year. Shares are down nearly 30%, outpacing the 20% drop in the


SPDR S&P Bank exchange-traded fund

(KBE). Shares faltered earlier this year when the bank posted higher-than-expected expenses due to salary increases and business investments. And in April, JPMorgan posted a miss on profit.

There were a few bright spots in Thursday’s report. Its return on tangible common equity (ROTCE)—a measure of profitability— hit 17% this quarter, reaching a target the bank had set earlier. The bank also saw trading revenue increase by 15% with both fixed income and equities trading equally benefiting from market volatility.

As is true in most earnings seasons, Wall Street will be just as—if not more—interested in the bank’s forward guidance. Going into this earnings season, bank executives are mindful of economic headwinds but confident in their client’s financial health. Investors will see if that thinking has changed in light of persistently high inflation.

Morgan Stanley (MS) also reports results Thursday, while


Citigroup

(C) and


Wells Fargo

(WFC) share their second-quarter results before the bell Friday.


Bank of America

(BAC) and


Goldman Sachs

(GS) will report on Monday.

Write to Carleton English at carleton.english@dowjones.com

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