For the fourth consecutive quarter, JPMorgan Chase is boosting its loan-loss reserves, this time setting aside $1.4 billion to cover loans that may sour if a mild recession takes hold this year.
That's in contrast with the year-ago period, when the New York megabank released $1.8 billion of reserves, citing the "continued resilience in the macroeconomic environment."
After months of inflation and rising interest rates, as well as Russia's nearly year-old war on Ukraine, JPMorgan is erring on the side of caution. And depending on how the macroeconomic environment ultimately shakes out, there could be even more reserve building in upcoming quarters, CEO Jamie Dimon told analysts Friday.
"It could get better or it could get worse," Dimon said during the company's fourth-quarter earnings call. In a more adverse economic case, "we would need about $6 billion more" in reserves, he said.
JPMorgan wasn't the only big bank to set aside more money during the fourth quarter for potentially troubled loans.
Also on Friday, San Francisco-based Wells Fargo said that it increased its allowance for credit losses by $397 million during the fourth quarter, primarily as a result of loan growth and "a less favorable economic environment."
JPMorgan officials did note that at least part of its latest reserve build is tied to loan growth in its card services unit. For the quarter, average loans in card services totaled $177 million, the company reported, which reflects an increase of 19% from the same period in 2021.
Bankers have been watching the economy like hawks for several quarters, looking for signs that inflation and interest rate hikes are tipping the nation into a recession. In April, Dimon
Dimon backed off those comments this week during an interview with Fox Business, saying that he "shouldn't ever use the word hurricane," though there are "storm clouds that may mitigate."
While all four big banks built up their reserves in the fourth quarter, "they … just moderately increased" them, said Ken Leon, an analyst at CFRA Research.
"The fourth-quarter results show that the U.S. economy and consumer are resilient, and we are not falling off a cliff as we look ahead to 2023," Leon said in an interview.
Including the $1.4 billion addition to credit reserves and $887 million of net charge-offs, JPMorgan's provision for loan losses totaled $2.3 billion for the quarter that ended Dec. 31.
Overall, the $3.7 trillion-asset company — whose quarterly earnings reports are often considered a bellwether for the U.S. banking industry — reported solid results for the period.
Net income totaled $11 billion, up 6% year over year, and total revenues climbed to $34.5 billion, which represented a 21% increase.
Net interest income totaled $20.3 billion, up 48% from the fourth quarter of 2021. Noninterest revenue fell by 8% to $15.3 billion as a result of lower fees in investment banking and asset and wealth management, along with a slowdown in home lending production revenue and reduced operating lease income in auto lending.
During 2023, JPMorgan's net interest income is projected to total around $73 billion, compared with $66.7 billion last year, the company said Friday. But that outlook "is particularly uncertain" given the interest rate environment and possible attrition in deposits, Chief Financial Officer Jeremy Barnum said Friday during the call.
JPMorgan's noninterest expenses rose 6% to $19 billion in the fourth quarter, as the company spent more money in areas such as compensation, marketing and technology, and they are expected to total $81 billion in 2023, driven by labor costs and continued investment across business lines, the company said. Noninterest expenses totaled $76.1 billion last year.
In response to an analyst's question about managing expenses in a year when it's hard to predict items like net interest income, Barnum told analysts that the company's investment plans "really shouldn't be that sensitive to short-term changes in the environment."
While there may be adjustments to marketing costs in the credit card business, for instance, he said that "the core strategic investments that we're making to secure the future of the company are not going to get modified because of the ups and downs of the environment."
Polo Rocha contributed to this story.
