JPMorgan just revealed it thinks a lot of people won’t pay their credit card bills

via CNBC

  • JPMorgan is building its credit reserves in anticipation that people might not be able to pay their credit card bills.
  • The bank’s first quarter earnings statement showed its credit reserves increased by $6.8 billion from the prior year, 56% of which was allocated for its consumer card division.
  • “Given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter,” CEO Jamie Dimon said in the earnings release.

JPMorgan is building its credit reserves in anticipation that people might not be able to pay their bills, especially for credit cards. The bank’s first quarter earnings statement showed its credit reserves increased by $6.8 billion from the prior year, 56% of which was set aside for its consumer card division.

“In the first quarter, the underlying results of the company were extremely good, however given the likelihood of a fairly severe recession, it was necessary to build credit reserves of $6.8B, resulting in total credit costs of $8.3B for the quarter,” CEO Jamie Dimon said in the earnings release.

Of the $6.8 billion, more than half — or $3.8 billion — is earmarked for the bank’s Card division. In total $4.4 billion is allocated for consumer finance, with the remaining $2.4 billion for the bank’s wholesale business. JPMorgan noted that the largest impacts would likely be felt in the oil and gas, real estate, and consumer and retail industries.

The $3.8 billion increase brings the total allowance for credit losses in the bank’s Card division to $15 billion as of March 31, which is an almost threefold increase from the $5.7 billion at the end of 2019. The new number also includes $5.5 billion from an accounting charge related to the Current Expected Credit Loss (CECL) standard.

The allowance for credit losses makes up more than half of the bank’s firmwide reserves of $25.4 billion.

The firm cited the “deterioration in the macro-economic environment” caused by the coronavirus pandemic as the primary reason for beefing up its reserves.