Big US banks prepare for downturn but rule out imminent recession

NEW YORK • Slowing demand and sinking markets have put an end to a period of record-setting profits for the the United States' biggest banks, but that does not mean a recession is imminent, top bankers say, even if it may look like they are preparing for one.

On Thursday, JPMorgan Chase and Morgan Stanley both reported smaller profits for the second quarter than for the same period last year.

JPMorgan set aside more money to cover potential loan losses and said it was suspending share buy-backs. Morgan Stanley said it was adopting a more cautious stance in response to the uncertain economic outlook.

But executives at JPMorgan, the nation's largest bank, said there were few - if any - signs that the United States economy was entering a recession. Retail banking customers are still spending money on things they want but do not need, such as travel and restaurants, and the businesses that JPMorgan lends to are making more use of some credit lines. Those are two signs that economic activity has - so far - held up despite a surge in annual inflation, which hit 9.1 per cent in June.

"We have looked a lot very carefully into our actual data," Mr Jeremy Barnum, JPMorgan's chief financial officer, said on a call with reporters. "There is essentially no evidence of actual weakness." JPMorgan's earnings were weighed down by sinking stock prices, slower investment banking activity and a softer market for home loans. It is feeling the effects of interest rate increases that the Federal Reserve is making to combat steep inflation, which has roiled financial markets. JPMorgan chief executive Jamie Dimon said bankers were preparing for a potentially rocky year ahead.

JPMorgan earned US$8.6 billion (S$12 billion) from April to June, 28 per cent below a year earlier but slightly higher than its first-quarter profit of US$8.3 billion. The bank's latest earnings missed analyst expectations, hitting its stock, which fell 3.5 per cent on Thursday.

Profit at Morgan Stanley also missed analyst expectations. The investment bank and investment firm's earnings fell nearly 30 per cent in the second quarter from a year earlier to US$2.4 billion. The recent market turmoil halted deals and caused fees from stock and bond offerings to plunge.

NYTIMES