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JPMorgan sets aside $6.8bn to protect itself against ‘severe recession’, earnings down 70%

jamie dimon JPM

JP Morgan Chase set aside $6.8bn, to protect itself from loan defaults from a likely “severe recession”, helping to send profit at America’s largest bank plummeting by 69% in the first three months of the year.

The bank said the move was to insulate itself from the “deterioration in the macro-economic environment as a result of the impact of COVID-19 and continued pressure on oil prices”.

The New York-based lender headed by Jamie Dimon (pictured) reported earnings per share of $0.78, missing analysts estimate of $2.49 even though the firm’s revenues remained barely unchanged compared to the same quarter last year.

The bank’s net income fell to $2.8bn during the first quarter of 2020, compared to $9.1bn it earned during the same period a year ago.

Dimon said: “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 $6.8bn, resulting in total credit costs of $8.3bn for the quarter.”

JPMorgan, the country’s largest bank by assets, saw its shares rise 2% so far in today’s morning trading on Tuesday, as investors anticipated a larger hit resulting from these provisions. Meanwhile, the stock has lost 28.5% of its value year-to-date, a drop that is almost twice as high as the 14.5% loss posted by the S&P 500 during that same period.

jpm stock chart

Analysts expect lenders to set aside assets in this first quarter, as banks brace for the financial impact of the economic slowdown triggered by the coronavirus. Montgomery Scott, an analyst at Pennsylvania-based financial advisory Janney,  said that aside from “a one-time reserve” for loan losses, the “bank earnings will continue to be positive”.

JPMorgan is the sixth-largest bank in the world and the largest bank in the US  with over 5,000 branches and 16,000 ATMs spread across the country and employing nearly 257,000 people. The bank ended this first quarter with nearly $1.8trn in deposits held by the institution and a common equity tier 1 capital ratio of 11.5%, a key measure of the strength of a bank’s reserves. This is significantly higher than the 4.5% minimum required by US banking regulations.

The lender reported that it has extended 90-day grace periods to its customers for credit card, mortgage, and auto lease payments, along with waiving or refunding certain other fees in an effort to provide customers and firms with relief during the pandemic.

Also, JP Morgan is taking part in government-backed funding programs for businesses as part of the $2trn package approved by the US Congress and it has received around 300,000 applications for the Small Business Administration’s Paycheck Protection Program, a loan that helps businesses keep their workforce employed during the health emergency.

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    Alejandro Arrieche

    Alejandro is a financial writer with 7 years of experience in financial management and financial analysis. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing and financial analysis.

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