JPMorgan Sees ‘Nothing Flashing Red’ In US Economy

JPMorgan Chase & Co. (NYSE:JPM) expects strong third-quarter investment banking fees and markets revenue amid broad-based strength across its Commercial & Investment Bank, while executives see few signs of systemic stress in the U.S. economy.Doug Petno, JPMorgan’s co-president and CEO of the Commercial & Investment Bank, said at the Barclays Global Financial Services Conference on Tuesday that the bank is seeing broad-based strength across investment banking products and geographies.Investment Banking, Markets Revenue Seen Up Mid-To-High TeensPetno said JPMorgan expects third-quarter investment banking fees to rise by a mid-to-high-teens percentage, assuming no major market disruption.Markets revenue is also expected to increase by a mid-to-high-teens percentage, with strength across FICC and equities. The forecast includes a seasonal sequential decline from a record second quarter.Petno said M&A activity is as strong as JPMorgan has seen in some time. He also described management and board confidence as strong. See More: Top Value Stocks Petno Sees Few Economic Warning SignsPetno said JPMorgan does not see “anything flashing red” and sees very little “flashing yellow” across the U.S. economy.The bank is seeing some weakness among companies exposed to lower-income consumers. It is also watching businesses vulnerable to AI-driven disruption. However, Petno said JPMorgan does not see anything systemic that is concerning at the moment.Petno also said CEO Jamie Dimon is not stepping back. He described Dimon as active, client-facing and regularly engaged with markets.Private Equity Activity Returns To NormalPetno said private equity activity is “definitely back to normal,” with financing markets open for strong credits, sponsors and transactions.Around 25% of U.S. and global IPOs so far this year have involved sponsor-backed companies, Petno said. Sponsor M&A is up about 6%, with more than $1 trillion of sponsor M&A activity.However, Petno warned that some investments from the 2019-2021 vintages could face pressure because they were acquired with significant leverage at much lower interest rates and high acquisition multiples.JPMorgan also remains cautious on private credit. Petno said the bank still worries about the asset class, particularly how weaker players could perform during a downturn. Still, he said private credit is in a “decent place” compared with earlier this year.JPMorgan Selective On AI FinancingPetno said AI investment is driving a significant increase in borrowing. However, JPMorgan is maintaining its underwriting discipline and being selective about financing.The bank is keeping its portfolio granular, with exposure limits for frontier-model companies and hyperscalers, while assessing how adverse AI scenarios could affect its loan book.“For the near term, we see opportunities to safely deploy credit,” Petno said.Competition for high-quality operating deposits also remains intense. JPMorgan ended last year with $1.2 trillion in CIB deposits, up 14% year over year. Deposits were up 10% at midyear.Stablecoin Demand Remains LimitedPetno said JPMorgan does not see much institutional demand for stablecoins, with current institutional interest largely tied to cryptocurrency.The bank’s Kinexys blockchain platform has processed more than $4 trillion since inception and handles about $5 billion daily. Petno said blockchain-based financial products remain nascent, citing interoperability, costs and regulatory questions.Organic Growth Remains CIB PriorityPetno said he does not expect acquisitions to become a major growth driver for the Commercial & Investment Bank because JPMorgan sees substantial organic opportunities.The bank maintains a “very, very high” bar for acquisitions. However, it remains prepared to pursue deals opportunistically when valuations and market conditions make sense.JPMorgan continues to target a 16% through-the-cycle return on equity for the CIB while investing in growth, technology, cybersecurity, data and resiliency.JPM Price Action: JPMorgan Chase shares were down 0.47% at $350.83 at the time of publication on Wednesday, according to Benzinga Pro data.Photo via Shutterstock Read Also: Fed Meeting Interest Rate Decision Preview: How Will Stocks React?