JP Morgan Chase reported a bigger-than-expected 28 per cent fall in second-quarter profit on Thursday as the largest US bank set aside more money to cover potential losses in the face of growing risks of a recession.
The bank's shares slid more than 4 per cent as it recorded $1.1 billion in provision for credit losses, compared to last year, when it released $3bn from its reserves.
The four biggest US banks are expected to record $3.5bn of loss provisions for the quarter, as they brace for a sharp economic slowdown with the US Federal Reserve aggressively raising interest rates to control runaway inflation.
Chief executive Jamie Dimon flagged various concerns including geopolitical tension, high inflation, waning consumer confidence and the "never-before-seen" quantitative tightening as threats to global economic growth.
Closer to home, however, the economy continues to grow and both the job market and consumer spending remain healthy, Mr Dimon said.
The bank posted a profit of $8.6bn, or $2.76 per share, missing the average analyst expectation of $2.88 per share, said Refinitiv.
Other large US banks including Citigroup, Wells Fargo and Morgan Stanley will report results this week, while Goldman Sachs and Bank of America will round out the big bank earnings season next week.
Analysts have forecast a sharp decline in second-quarter earnings from a year ago, when banks released loan loss reserves and benefited from a boom in deal-making.
The company also temporarily suspended its share buyback to further shore up its capital levels.
JP Morgan's earnings hurt the broader market with US stock index futures extending losses after they were released.
Investment banking revenue fell 61 per cent to $1.4bn, mainly hurt by lower fees from deals and debt and equity issuances.
As is the case with rivals Goldman Sachs and Morgan Stanley, JP Morgan last year rode the deal-making wave and advised on several major business combinations, underwrote some of the biggest stock market flotations and helped to put together deals involving special purpose acquisition companies, or SPACs.
However, Russia's invasion of Ukraine in February and fears around an economic recession dealt a blow to merger and acquisition activity in 2022. The value of announced deals globally in the second quarter dropped 25.5 per cent year-on-year to $1 trillion, according to Dealogic data.
M&A activity in the US also plunged 40 per cent to $456bn in the second quarter.
JP Morgan reported net revenue of $31.6bn, up 1 per cent, while net interest income was $15.2bn, up 19 per cent in the quarter.
Visit Abu Dhabi culinary team's top Emirati restaurants in Abu Dhabi
Yadoo’s House Restaurant & Cafe
For the karak and Yoodo's house platter with includes eggs, balaleet, khamir and chebab bread.
Golden Dallah
For the cappuccino, luqaimat and aseeda.
Al Mrzab Restaurant
For the shrimp murabian and Kuwaiti options including Kuwaiti machboos with kebab and spicy sauce.
Al Derwaza
For the fish hubul, regag bread, biryani and special seafood soup.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Electric scooters: some rules to remember
- Riders must be 14-years-old or over
- Wear a protective helmet
- Park the electric scooter in designated parking lots (if any)
- Do not leave electric scooter in locations that obstruct traffic or pedestrians
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- Do not drive outside designated lanes
Arabian Gulf League fixtures:
Friday:
- Emirates v Hatta, 5.15pm
- Al Wahda v Al Dhafra, 5.25pm
- Al Ain v Shabab Al Ahli Dubai, 8.15pm
Saturday:
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- Sharjah v Al Wasl, 5.20pm
- Al Jazira v Al Nasr, 8.15pm
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