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JPMorgan Chase Expects To Boost Credit Reserves Again in Second Quarter

CEO Jamie Dimon said he expects the bank will boost credit reserves in Q2 by an amount “roughly equivalent” to the $7 billion it added in Q1 to protect the bank from a potential wave of loan defaults.

Image source: JPMorgan Chase

By Elizabeth Dilts Marshall

NEW YORK (Reuters) – JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on Tuesday that he expects the bank will boost its credit reserves again in the second quarter by an amount “roughly equivalent” to the $7 billion it added in the first quarter to protect the bank from a potential wave of loan defaults.

Dimon said that it was still early, but he expects most banks will add to cash reserves because economists now estimate the U.S. unemployment rate will rise to 18% by June 30, as businesses cannot yet rehire workers let go during the economic shutdown caused by the novel coronavirus.

“Since CECL is very forward looking, I think that banks will have to put up a lot more credit reserves this quarter,” Dimon said, referring a new accounting rule that requires banks to take provisions now for loans a borrower may default on at any point. “We would have a substantial increase in credit reserves in the second quarter.”

JPMorgan’s first-quarter profits plunged by roughly two-thirds because it put aside $7 billion in reserves for outstanding loans to customers.

Speaking at a virtual conference hosted by Deutsche Bank, Dimon said that these builds in the bank’s credit reserve coffers are front-loaded and will likely taper off in the third and fourth quarters, when economists also expect the U.S. unemployment rate to fall closer to 10%.

Despite that, Dimon said there are signs the economy is regaining its footing. Customers of the largest U.S. bank are spending more on their debit cards again, bringing 2020’s total spending levels back in line with that of 2019, Dimon said.

Revenues from the bank’s trading division also remain strong, similar to levels seen in March and April when JPMorgan handled record-high volumes, Dimon said.

Reporting By Elizabeth Dilts Marshall, Editing by Franklin Paul and Nick Zieminski.


Source: Reuters

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