JPMC’s Dimon Says Outlook On Bank Reserves Could Improve

J.P. Morgan Chase & Co. could be on the road to rebuild its reserves exhausted during COVID-19 if the nation’s economy improves, according to Keefe, Bruyette & Woods (KBW).

Barons reported analysts at the New York-based investment banking firm recently met with J.P. Morgan’s CEO Jamie Dimon to discuss the bank’s financial outlook as its employees are set to return to their offices next week.

Despite uncertainty over the economy, J.P. Morgan has seen signs that credit is doing well. For example, customers who sought deferrals on their credit cards and mortgages at the onset of the pandemic continued to make payments, Brian Kleinhanzl, KBW’s managing director wrote.

Still, the uncertainty over the biggest dive in the economy since the Great Depression has made it challenging for investors to determine the credit issues facing the county’s financial institutions. So far, the stimulus passed by Congress earlier this year has limited credit losses so far.

Banks have built reserves this year under the Current Expected Credit Losses (CECL) rules, an accounting model that focuses on estimation of expected losses over the life of the loans, Baron’s reported. Losses could surface later, but reserves continue to grow as the economy has done better than the bank’s initial forecasts.

“If projections do not change and come in as expected, Jamie noted it would not be unreasonable to expect reserve releases in the fourth quarter,” Kleinhanzl wrote.

Barron’s has reported some banks, including J.P. Morgan, could release reserves next year and in 2022.

In addition to credit, Dimon also discussed the pluses and minuses of working from home. While shelter-in-place orders forced quick decisions while staff worked from home digitally, productivity waned, especially on Mondays and Fridays, according to Kleinhanzl.

Younger staff may also be at a disadvantage without guidance in the office from experienced staffers.

Last week, J.P. Morgan executives told the bank’s senior staff in its sales and trading divisions to report to their Madison Avenue offices on Sept. 21, sources told The Wall Street Journal.

Marc Badrichani, the bank’s head of sales and research, and Trading Chief Troy Rohrbaugh delivered the announcement in conference calls Wednesday (Sept. 9). The executives also told employees that if the senior staff remained at home full-time, junior staffers wouldn’t get the training they need to succeed, sources told the WSJ.

To ease the return for a nervous workforce, Chase implemented a mandatory training program to define office rules, the sources said.

In mid-March, a coronavirus outbreak infected more than a dozen people on the company’s fifth-floor offices. Now, by reopening the trading floor, J.P.Morgan is signaling to employees and competitors that it’s okay to return.