JPMorgan Chase forecasts more credit headwinds

Gabby Jones/Bloomberg

UPDATE: This article includes quotes from CEO Jamie Dimon and details shared during JPMorgan's earnings call.

Credit remains a sticking point for JPMorgan Chase , and potentially some of its rivals, as the bank's executives warned Friday that there could be further deterioration in coming quarters.

The largest U.S. bank by assets reported a steep year-over-year increase in credit costs, as it sought to cover a surge in net charge-offs and added $1 billion in loan-loss reserves.

During a conference call to discuss third-quarter results, Chief Financial Officer Jeremy Barnum said the company expects that financial results in coming quarters "will be somewhat challenged as normalization continues." JPMorgan is the largest credit card issuer in the country.

"But we remain upbeat and focused on executing in order to continue delivering excellent returns through the cycle," Barnum told analysts.

Barnum in July had characterized credit losses as a "normalization, not a deterioration." During the second quarter, the company boosted its loan-loss reserves by $821 million, following a $72 million net reserve release in this year's first quarter.

For the third quarter, the megabank's provision for credit losses more than doubled to $3.1 billion, from $1.4 billion in the year-ago quarter. Net charge-offs for the three months ended Sept. 30 were $2.1 billion, up 40% year over year and largely driven by card services, JPMorgan said in a press release. A year ago, the bank recorded a net reserve release of $113 million.

The majority of net charge-offs occurred in JPMorgan's consumer and community banking segment, which includes its credit card business. Net charge-offs in the segment totaled $1.9 billion, up $520 million from the prior-year quarter and driven by card services, the bank said.

Despite signals that the U.S. economy is improving, JPMorgan boosted its loan-loss reserves for the consumer and community banking unit by $876 million from a year ago. The company said card services experienced "growth in revolving balances and changes in certain macroeconomic variables."

Still, it maintained its guidance for a full-year net charge-off rate in cards to be about 3.4%. In 2023, the rate was 1.02%.

Overall, the higher provision put a crimp in JPMorgan's net income, which was $12.9 billion, down 2% compared with the third quarter of 2023. Still, the company's earnings per share topped expectations at $4.37. Analysts polled by S&P had forecast earnings per share of $3.98.

Revenue for the period was $43.3 billion, up 6% from the year-ago quarter. Net interest income was a factor, up 3% for the quarter, while noninterest income rose 11%, the bank said.

Fee income included a 29% increase in investment banking revenues.

JPMorgan raised its guidance for full-year net interest income and full-year expenses. The company now projects net interest income will be about $92.5 billion for 2024, up from the forecast of $91 billion that it provided in July.

Full-year expenses, excluding legal fees but including a special assessment by the Federal Deposit Insurance Corp. and a contribution to the firm's foundation, are now forecast to be $91.5 billion, about half a billion dollars less than what it laid out this summer.

Analysts during Friday's earnings call tried several times to get a better sense of how JPMorgan expects its net interest income to shake out in 2025. Across the banking industry, net interest income, which is the difference between the interest that banks collect on loans and the interest they pay depositors, is expected to be under pressure in the near term as interest rates begin to decline, due to a gap between the timing of when loans will reprice and when deposits will reprice.

Last month, at a conference, President and Chief Operating Officer Daniel Pinto warned that analysts' expectations for 2025 revenue and expenses are "not very reasonable," since lower interest rates would reduce interest income and inflation is keeping costs elevated.

At that time, consensus estimates for 2025 include $90 billion in net interest income and $93.7 billion in expenses. On Friday, Barnum said $87 million, which excludes markets, is "definitely in the ballpark" of where the bank is projecting next year's net interest income to land.

The bank is also projecting that net interest income will trough sometime mid-year, he said.

"Obviously, the mix of those things will play out in different ways, and … who knows what the yield curve will wind up doing," Barnum said. "But on our current assumptions, on the current yield curve, and remembering that we're in the third quarter now … that's what we think."

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September 17

Chairman and CEO Jamie Dimon was audibly frustrated by the net interest income questions, saying that "next time, let's just give [analysts] the damn number."

"I don't want to spend all the time on these calls going through what they're guessing what [net interest income] is going to be next year," Dimon said. "And can I just also point out that [net interest income], all things being equal, is a number, but all things are never equal."

Overall, JPMorgan reported "a solid quarter," according to Scot Siefers, an analyst at Piper Sandler. In a research note, Siefers said the company beat on net interest income and expenses.

Wall Street seemed to like what JPMorgan laid out. By midday Friday, shares were up more than 5.4%. The stock has gained about 31% for the year.

Like other banks, JPMorgan continues to await details from regulators about new rules for the Basel III endgame proposal. Last month, Federal Reserve Vice Chair for Supervision Michael Barr outlined changes to the proposal in a speech that would impact risk weight calculations related to credit, market, operations and derivatives, among other adjustments.

But it has not yet been released for comment. The original proposal, which was made public in July 2023, was harshly criticized by banks and other groups for being too onerous on capital requirements.

"We actually just really need to [see] the proposal because the details matter a lot for this stuff," Barnum told analysts. "And so our focus is on hoping to see the proposal, so that we can process the details and continue advocating as appropriate."