JPMorgan Chase warned that the coronavirus crisis could take an even bigger toll on its business this year, after reporting a 69 per cent fall in first-quarter profits as it ramped up loan loss provisions to prepare for a “fairly severe recession”.
America’s biggest bank reported net income of almost $2.9bn for the three months ended in March, down from about $9.2bn a year earlier. Earnings per share of 78 cents were far below the $1.76 predicted by analysts contributing to a Bloomberg poll.
Loan loss provisions jumped almost $6.8bn to $8.3bn, their highest level since 2009 when the US economy was reeling from the global financial crisis. The bank’s chief executive Jamie Dimon said the extra provisions, which fell most heavily in the bank’s credit cards division, reflected “the likelihood of a fairly severe recession”.
On a call with journalists, chief financial officer Jenn Piepszak warned that “given the current market environment . . . credit reserves build could be meaningfully higher in aggregate over the next several quarters relative to what we took in the first quarter”.
Both she and Mr Dimon stressed that the ultimate outcome depended on how well the government stimulus plans would work.
JPMorgan is known as being one of the most conservative banks on Wall Street. Ms Piepszak said higher provisions were taken even though just 4 per cent of mortgage holders had missed payments so far, and late payments on credit cards were up only slightly.
Still, the scale of the provisions sets a grim tone for the other big US banks reporting later this week.
JPMorgan also warned that it expected a $3.5bn fall in non interest revenue at its investment bank for the 2020 year overall, while net interest income across the bank is now expected to come in at $55.5bn for the full year — lower than the $57bn-plus figure JPMorgan flagged at its investor day on February 25.
Other headwinds in the challenging circumstances of low interest rates, rising unemployment and the suspension of swathes of the global economy included lower fees from asset and wealth management business and lower investment banking fees “on lower activity”.
Mr Dimon — who said his career plans had not changed after life-saving heart surgery in March — stressed that the bank had “performed well in what was a very tough and unique operating environment”.
He pointed to growth in deposits, where balances grew by 23 per cent year-on-year.
Analysts largely agreed, including RBC analyst Gerard Cassidy who told clients: “Overall, JPM posted a decent underlying first-quarter results in the midst of unprecedented headwinds.”
Saul Martinez, analyst at UBS, said the results showed “JPM’s strengths in that the company is able to take a sizeable reserve charge and still be profitable given its considerable pre-provision profit buffers. Not all banks may be able to do this.”
Investment banking revenue fell 49 per cent year-on-year, to $886m, mostly because of $820m of writedowns on bridge loans. In an email to staff, investment bank boss Daniel Pinto stressed that JPMorgan’s bridge loan book was a quarter of the size than it was going into the financial crisis.
Markets revenues of $7.2bn were up 32 per cent — far higher than the “mid teens” rise Mr Pinto had indicated in late February — as “strong client activity” drove a 34 per cent rise in fixed income trading while a derivatives boom helped equities revenues to rise 28 per cent.
Shares were around 2.8 per cent higher in early trading at $100.92, in line with a rise in the S&P 500 index.
The outlook marks a complete turnround to a year ago, when Mr Dimon told analysts economic growth in the US “can go on for years. There’s no law that says it has to stop.” Just three months ago, JPMorgan reported its highest ever annual profit, making net income of $36.4bn as its consumer and investment banks then boosted profits even as interest rates fell.
