Yahoo Finance JPMorgan (JPM) Expects Economic Slowdown to Weigh on Loan Demand
JPMorgan’s JPM president and chief operating officer, Daniel Pinto, believes that the demand for loans is declining amid the expectations of an economic slowdown/recession.
On Friday, Pinto said, “There is no doubt that regional banks and smaller banks are building up liquidity, building capital, so they are lending a bit less. I don't think that the big banks have really changed their lending standards... there is not a huge amount of loan demand in the first place.”
He added, there will be a “recession at some point. But I don't see for the moment, a crisis. It's just a slowdown in the economy.”
In the first quarter of this year, banks witnessed a rise in their interest incomes and margins, supported by growth in loan balances and higher interest rates. While interest rates are expected to remain high in the near term, loan growth will likely slow down a bit because of lower consumer spending.
Per Bank of America’s BAC CEO, Brian Moynihan, after the series of interest rate cuts by the Federal Reserve to cushion the U.S. economy from the pandemic-induced uncertainty, consumer spending has slowed down.
Moynihan said that the slowdown in consumer spending shows that the Fed has “won the war” in its fight to cool the economy and bring down inflation.
On another note, like other Wall Street banks, JPM has warned that its investment banking (“IB”) business will be negatively impacted this year because of the economic slowdown and uncertain outlook.
At its Investor Day last month, JPM provided guidance for IB and markets revenues, which are expected to be down 15% in the first half of 2023.
Over the past six months, shares of JPM have gained 6.7% against the industry’s fall of 6.6%.
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Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our Take
The current challenging economic environment has led to a persistent slowdown in the IB business. Factors such as geopolitical tensions, inflation, rising interest rates and fears of a global recession have acted as headwinds for mergers and acquisitions.
Thus, deal volume and total deal value numbers have crashed. For the same reasons, IPOs, follow-up equity issuances and bond issuances have dried up.
Thus, while JPMorgan’s markets revenues have been offering some support, the company has been witnessing muted IB performance amid an industry-wide slump.
For BAC, its trading numbers were impressive in the first quarter, but total IB fees tanked 24.1% year over year, reflecting the weak industry-wide performance of the underwriting business. Advisory fees plunged 28.7%.
Even BofA expects its IB fees and trading revenues to be broadly flat in the second quarter of 2023.
Similar to BofA and JPM, Morgan Stanley’s MS trading and IB outlook looks bleak for the near term.
Per Morgan Stanley’s co-president, Andy Saperstein, the firm expects a year-over-year decline in its trading and IB revenues in the second quarter of 2023.
Saperstein believes that because of a more challenging economic environment, Morgan Stanley’s sales and trading “results will be notably down year over year versus a strong second quarter last year,” while “investment banking is also very challenged.”
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