Daily Brief: JPMorgan Could Swear It’s Been Here Before…

Daily Brief: JPMorgan Could Swear It’s Been Here Before…

over 1 year ago3 mins

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US banking powerhouse JPMorgan posted disappointing quarterly results on Thursday.

What does this mean?

During the height of the pandemic, JPMorgan was forced to build up a pile of funds – known as “loan loss reserves” – that would protect its bottom line if customers couldn’t pay off their debts. But after finally releasing those reserves into the business last year, the bank’s found itself right back where it started: it’s been forced to build them up again in case of a recession, adding another $428 million to the total last quarter. And with interest rate hikes dragging on both markets and corporate dealmaking, its faltering investment banking business added insult to injury.

Of course, those hikes aren’t all bad: JPMorgan made 19% more net interest income last quarter than it did the same time last year, while market volatility boosted its trading business. But the bank’s overall profit still fell 28%, and it also suspended share buybacks to save some cash for incoming regulations. That was the final nail in the coffin: investors sent its stock down 5%.

Buyback halt

Why should I care?

Zooming in: Nice try, JP Morgan.

Even JPMorgan’s interest income could take a hit from here on out. See, big banks typically raise lending rates much quicker than they raise savings rates, meaning they can profit from a bigger margin for longer. But cash-strapped customers aren’t suckers, and they’re increasingly moving their money to smaller lenders that pay savers more. So if JPMorgan wants to hold onto them, it might need to start offering a better deal – and fast.

The bigger picture: Brace for impact.

Morgan Stanley let investors down on Thursday too, with its profit plunging by 29%. Like JPMorgan, its investment banking revenue collapsed, but its flagship wealth management business – which looks after rich people’s cash in exchange for a fee – struggled too. So with retail banking, investment banking, and wealth management all looking delicate, this doesn’t bode well for the rest of the sector this earnings season.

Bank stocks

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TSMC Bucks The Economic Slowdown

TSMC image

TSMC – the world’s biggest contract chipmaker – reported booming quarterly results on Thursday.

What does this mean?

TSMC controls over half the global market for made-to-order chips, and it boasts the most advanced semiconductor production technology in the world. So it’s hardly a surprise that its products were still in high demand from the likes of Apple – which has launched five different types of chip in the last 18 months alone – and the carmaking industry. That helped TSMC grow its revenue by an expectation-busting 44% last quarter from the same time last year, while profit jumped 77% in the biggest uptick in two years. The chipmaker said it’s “highly confident” about the future too: it upped its revenue outlook, saying it was experiencing plenty of demand for the kinds of chips used in AI and 5G. Well, obviously: Bill Gates isn’t exactly going to take over the world with a can-do attitude alone.

TSMC stock
Source: Google Finance

Why should I care?

The bigger picture: TSMC is playing it safe.

Investors have been daring to dream that the economic slowdown hasn’t impacted chipmakers yet, and TSMC’s results will have given them more faith. But there are signs that a dropoff is on the way: demand for chips specifically used in consumer electronics is starting to wane, which analysts think will come back to hurt TSMC toward the end of the year. That might be why the firm said it’s planning to push some of this year’s planned spending into 2023.

TSMC inventory

Zooming out: If in doubt, bribery.

TSMC’s still going ahead with plans to build overseas plants, including a massive American hub in Arizona for $12 billion. That’ll come as welcome news for the US government, which has been trying to bring chipmaking back to its shores in a bid to counter China’s growing economic power. In fact, it’s currently debating whether to offer $52 billion worth of incentives to get this party started.

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