JPMorgan beats profit estimates, sees mild recession

By Niket Nishant and Saeed Azhar

(Reuters) -JPMorgan Chase & Co, the biggest lender in the United States, said on Friday it set aside $1.4 billion in anticipation of a mild recession, even as it beat forecasts for quarterly profit on the back of a strong performance at its trading unit.

JPMorgan and other banks kicked off quarterly earnings for corporate America that are expected to fall for the first time since the third quarter of 2020. The stock recovered to trade up 2.5% at $143.04 in afternoon trading.

UBS analysts said in a note that JPMorgan's guidance on net interest income (NII) - the money the bank gets from interest payments - of $74 billion, excluding markets, was below expectations. They signaled the markets component of NII will be a drag on the income segment.

"While this is a warning shot for the entire industry and we expect some conservatism to have been considered in this outlook, JPM was a crowd favorite heading into earnings. We expect the shares to be weak today," it said.

Chief Executive Jamie Dimon said on a conference call that there was more competition for deposits as higher rates was causing customers to migrate to investments and other cash alternatives meaning the bank was "going to have to change saving rates."

He earlier said in a statement consumers were still spending excess cash and businesses remained healthy, but he listed a number of uncertainties facing the economy.

"We still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation... and the unprecedented quantitative tightening."

The bank flagged a modest deterioration in its macroeconomic outlook, "reflecting a mild recession in the central case."

JPMorgan's investment banking unit continued its poor run in the quarter, with revenue down 57% as corporate executives battened down the hatches to prepare for a potential recession instead of spending on deals.

JPMorgan Chief Financial Officer Jeremy Barnum said one of the necessary conditions for people to do deals is getting "comfortable" with valuations, which fell last year, and that could help in 2023 despite a weak economic outlook.

Trading revenue, however, gained from market volatility as investors repositioned bets to navigate a high interest rate environment.

While fixed-income markets trading revenue was up 12%, equity trading revenue was relatively flat, the bank said.

JPMorgan's Dimon also said the acquisition of college financial planning platform Frank was a "huge mistake," after the firm shut down the website.

JPMorgan is also suing the startup's founder and another executive for creating nearly 4 million fake customer accounts.

INTEREST RATE BOOST

The bank's net interest income, excluding markets, surged 72% to $20 billion, thanks to the U.S. Federal Reserve tightening its monetary policy with rate hikes.

After relentlessly jacking up its benchmark federal funds rate for most of last year, the Fed has begun easing off the pedal, acknowledging that the impact of rate hikes often takes time to spill over into the economy.

The bank said it expects net interest income of $74 billion excluding markets in 2023, versus the average estimate of $75.15 billion, according to Refinitiv data.

Fed Chair Jerome Powell, however, has also thrown cold water on expectations of a pivot in the near-term, which has increased the odds of a recession.

Banks have responded by setting aside more funds to cover bad loans and cutting jobs. According to reports, investment bank Goldman Sachs is laying off more than 3,000 employees.

JPMorgan's Barnum said on a media call that the bank was still hiring and was "still in growth mode".

JPMorgan's profit for the three months ended Dec. 31 was $11 billion, or $3.57 per share, compared with $10.4 billion, or $3.33 per share a year earlier.

Excluding items, the company earned $3.56 per share, beating the average analyst estimate of $3.07.

(Reporting by Niket Nishant in Bengaluru and Saeed Azhar in New York; Editing by Saumyadeb Chakrabarty, Sharon Singleton and Nick Zieminski)