Wall Street banks earned record fees during the coronavirus pandemic by working on a flood of mergers and acquisitions, public markets and special-purpose buyouts. However, the pipeline of businesses, especially the flow of initial public offerings, has slowed significantly since the start of the year as investors shun Spacs and money-losing startups. It was the first profit loss by either JPMorgan – the largest US lender by assets and an industrial sector – or Morgan Stanley since early 2020. “In terms of prospects [for investment banking]while our existing pipeline remains healthy, converting the deal backlog may be challenging if current headwinds continue,” JPMorgan chief financial officer Jeremy Barnum said in a call with analysts. Banks also face a challenging regulatory environment. JPMorgan said it “temporarily suspended share buybacks” after the Federal Reserve hit it last month with higher capital requirements. And Morgan Stanley indicated it is expected to pay a $200 million fine to U.S. regulators related to a federal investigation into its staff’s use of unauthorized communications channels. JPMorgan paid that amount in fines to settle a similar case. JPMorgan reported total second-quarter net income of $8.2 billion, or $2.76 per share, down nearly 30% from $11.5 billion, or $3.78 per share, in the same period last year. Analysts had forecast quarterly net income of $8.5 billion, or $2.90 a share, according to consensus data compiled by Bloomberg. At Morgan Stanley net income attributable to shareholders also fell 30 percent to $2.4 billion, missing estimates for $2.75 billion. Both banks suffered bigger declines in investment banking revenue than analysts had expected, as well as losses on loans they have yet to sell to third parties. The negative reports set a gloomy tone for US bank earnings seasons, with Citigroup reporting earnings on Friday, followed by Goldman Sachs and Bank of America on Monday. JPMorgan shares fell about 4.5 percent in early afternoon trading in New York, while Morgan Stanley fell 0.6 percent. Goldman fell about 3 percent and BofA fell 2.8 percent. During the quarter, JPMorgan and Morgan Stanley took a hit because they were unable to sell debt they had taken on to finance leveraged buyouts to investors. JPMorgan said it had received $257 million in subleases on loans held for sale, while Morgan Stanley said it had incurred $282 million in mark-to-market losses. For JPMorgan, the poor result in investment banking took the shine off a boost in the amount of money it makes from lending, which has risen sharply as the Fed raises interest rates. The bank reported net interest income — the difference between what it pays out on deposits and what it earns on loans and other assets — of $15.1 billion. That was up 19 percent year-on-year, the biggest such increase in more than a decade.

JPMorgan raised its target for 2022 net interest income, excluding its markets business, to more than $58 billion, from more than $56 billion previously. Analysts at Wells Fargo said JPMorgan’s earnings miss reflected Wall Street banking activity partially offset by Main Street banking strength. JPMorgan and Morgan Stanley reported a jump in revenue in their trading divisions as investors traded heavily amid choppy financial markets.