Morgan Stanley and JP Morgan Profits Both Erode By Nearly a Third

Talk about a photo finish that no one will brag about “winning” — JP Morgan Chase reported a 28% decline in its second-quarter profit Thursday, only for Morgan Stanley to barely “beat” that with its own 29% profit decline.

The pair, two of America’s largest banks, both missed analyst estimates, adding to the market’s surplus of reasons to fret about the future. But a few underlying signs suggest cause for hope, and may offer a clearer picture of the economy right now.

No Actual Weakness

JP Morgan’s profit fell to $8.65 billion or $2.76 per share, versus the $2.89 per share forecast by analysts, but the main driver of the dip was $428 million that the bank set aside for a rainy day fund to cover potential future loan losses. Consumers are still spending on things like travel and nights out on the town — money put on the bank’s Chase credit cards rose 21% year-over-year and 15% from the first quarter, although the fees collected on those cards dropped.

But consumers are cutting back on big-ticket purchases — mortgage originations at JP Morgan were down 45% year-over-year and auto loan and lease originations 44%. Taken together, these factors suggest increasingly cost-conscious households, but not enough to spark sizable economic ripple effects:

• “We’ve looked a lot very carefully into our actual data,” Jeremy Barnum, JP Morgan’s CFO, told a media conference call. “There is essentially no evidence of actual weakness.”
• Weakness does exist for the banks, however, when it comes to IPOs and debt and equity issuance, both of which hit a wall in 2022 following years of bountiful bull market dealmaking. JP Morgan’s investment banking fees fell 54% and Morgan Stanley’s Investment banking revenue, which includes fees from mergers and acquisitions, fell 55%.

Market volatility has been a blessing, since traders at both banks were able to make money off of shifting stock prices and interest rates. JP Morgan’s fees from Wall Street trading rose 15% and Morgan Stanley trading revenue climbed 21% from a year ago.

What Tipped the Photo Finish: Morgan Stanley’s $2.5 billion profit, which at $1.39 a share fell short of analysts’ $1.56 forecasts, was also dented by a unique circumstance. The bank put aside $200 million to settle a probe by US regulators into its employees’ use of unapproved personal devices. Funny enough, JPMorgan agreed to pay the same amount to regulators last year while under similar scrutiny.

When it Rains: Earnings from BlackRock, Citigroup, U.S. Bancorp, and Wells Fargo are out today. Bank of America and Goldman Sachs will follow Monday. So expect plenty more to fret or not fret about.