Consumer spending is fine. Card volumes are fine.
Credit is fine too — at least for now. But J.P. Morgan’s latest earnings results show that, in tandem with a $902 million loan loss built in anticipation of losses, a lot remains uncertain.
Those loan loss reserves represent a marked change from a year ago, when the company released about $5.2 billion into earnings. Back then, the loan loss reserves that had been built up had been taken against the backdrop of the pandemic. Now the total provision for credit losses stands at $1.4 billion.
This time around, the caution is tied to the macro uncertainty, the Fed hikes that loom in a bid to stanch inflation. CEO Jamie Dimon, in tandem with the numbers released Wednesday (April 13), said there are “higher probabilities” of movement to the downslide in the economy — and the risks are gathering.
For now, though, J.P.Morgan’s latest results showed 21% growth in credit and debit card volumes. Supplemental materials from the firm showed that total card sales volume came in at $351.5 million.
During a conference call with analysts, Chief Financial Officer Jeremy Barnum said the firm is “continuing to see positive trends.” Additionally, spending on travel and entertainment has been picking up and were termed “robust” on the call.
Credit quality remains strong, management said on the call, even with the pressures of higher gas prices and inflation in general.
“Right now, we are not actually seeing anything that gives a reason to worry,” Barnum said.
Asked about the reserve buildup — the $902 million — management said on the call that $300 million is related to specific holdings on Russia-associated individualized names, and the remainder is tied to what Barnum said is a “low probability to a slightly higher probability of a Volcker-style, Fed-induced recession in response to the current inflationary environment.”
Said Dimon: “The consumer has money. They pay down credit card debt. Confidence isn’t high, but the fact is that they have money, and they’re spending their money. They’ve got $2 trillion still in their savings and in their checking accounts.”
Average loans were down 1% year on year to just under $429 billion. The credit card net charge-off rate was 1.4%, down sharply from just under 3% a year ago. Management said that getting back to pre-pandemic revolving balances at the end of the year may be possible.
The imbalances in supply and demand were also evident on the call. The company’s auto originations were $8.4 billion down on 25% on the lack of vehicle supply.
Looking ahead, in further commentary on the call, Dimon said that in reference to competition in the payments space — where Dimon had said that in consumer cards, the market share for the company is 25% — in treasury services, that share is 7%.
Dimon said “we’re building out all the things that we need for real-time payments and certain blockchain [projects] … and building out our wholesale capabilities for our clients around the world.”
To get to double digits in treasury, he said, a reasonable timeframe might be over the next five years.
Other detailed earnings-related documents showed that total active digital customers were up 6% to 60.3 million; total active mobile customers gained 11% to 46.5 million.