At JPMorgan Chase, headline credit trends remained a bright spot during the second quarter. Nonperforming assets declined from the prior quarter, and net charge-offs remained historically low.
But if you dig deeper, there are some signs that credit quality may start to swing in the opposite direction.
When Chief Financial Officer Jeremy Barnum was asked Thursday whether he could see any initial cracks, he said: “Certainly not in any of our actual reported results for this quarter.”
“But if you really want to turn up the magnification on the microscope,” Barnum said during a call with analysts, “if you look at cash buffers in the lower-income segments and early delinquency roll rates in those segments, you can maybe see a little bit of an early-warning signal.”
To be sure, cash buffers for those lower-income customers are still above pre-pandemic levels, Barnum noted. But the amount of excess cash they have is starting to creep down, while delinquencies are starting to rise, he said.
JPMorgan kicked off the industry’s quarterly earnings season at a perilous time. The outlook for the U.S. economy has darkened amid the highest inflation rates in four decades and
Last month, JPMorgan CEO Jamie Dimon revised his outlook on the economy from seeing “
Dimon did not repeat his “hurricane” comment on Thursday, but instead pointed to several potential scenarios that could play out depending on a multitude of factors — including interest rate hikes, volatile markets and the effects of Russia’s ongoing war against Ukraine.
“The future environment, which is not that far off, involves rates going up, maybe more than people think, because of inflation, maybe stagflation, maybe a soft landing,” Dimon said. “I'm simply saying there's a range of potential outcomes from a soft landing to a hard landing.”
JPMorgan Chase CEO Jamie Dimon expressed even deeper concern Wednesday about the likelihood of an economic downturn than he has in recent months. Wells Fargo CEO Charlie Scharf was less pessimistic, but he still spoke of the “reality that the economy has to slow.”
The nation's largest bank by assets is taking steps to prepare for what lies ahead. JPMorgan set aside $428 million in net reserves for the second quarter, in part because of loan growth, but also because of “a modest deterioration in the economic outlook.” In the first quarter it set aside $902 million in loan-loss reserves, its first buildup of reserves since the second quarter of 2020.
Nonperforming assets declined 9% from the prior quarter, while the percentage of 30-day card delinquencies fell by 4 basis points from the first quarter.
It’s too early to say whether the reduction of cash reserves among lower-income customers is concrete evidence of deteriorating credit quality or a more benign signal, Barnum said.
“I think there’s really still a big question about whether that’s simply normalization or whether it’s actually an early warning sign of deterioration,” he said.
JPMorgan has decided to
The addition of more reserves factored into a decline in second-quarter net income, which totaled $8.6 billion, down 28% from the year-ago quarter, when the bank released $3 billion in net reserves. Earnings per share for the period between March 31 and June 30, 2022, totaled $2.76, 13 cents short of the average estimate of analysts polled by FactSet Research Systems.
Net interest income rose 19% year over year, reflecting the impact of higher interest rates. Fee income fell 12%, in part because of a double-digit drop in investment banking fees.
One area that has not changed amid market uncertainty: the bank’s full-year expense projections. JPMorgan executives are sticking to their outlook that spending will increase 8% this year to $77 billion, as the bank continues to invest in marketing, technology, hiring and other growth initiatives.
One analyst wanted to know why JPMorgan didn’t adjust its spending plans downward, given the risk of a recession.
“We don't pull in and pull out and go up and go down and go into markets and out of markets through storms,” Dimon said. “We invest, we grow, we expand, we manage through the storm ....”
Shares in JPMorgan were down Thursday by about 3.5%.
