JPMorgan Credit and Debit Volumes Slow as Reserve for Card Losses Grows

For J.P. Morgan, caution abounds as the bank increased loan loss provisions, designed to cover possible loan losses amid economic turbulence.

Management discussed on a conference call Friday (April 11) discussing first-quarter earnings that at the moment, credit performance is in line with expectations, but its outlook also includes an upward revision to expected unemployment.

An earnings presentation showed at least some pressure on consumers, as spending on credit and debit cards slowed a bit, to 7% in the first quarter, and down from the 8% pace seen in the final three months of the year. Commentary on the call indicated that consumers were “front-loading” their spending ahead of looming tariffs, which are now a reality.

“The economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and ‘trade wars, ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility,” CEO Jamie Dimon said in a Friday press release. “As always, we hope for the best but prepare the firm for a wide range of scenarios.”

J.P. Morgan shares were up 1% in intraday trading Friday.

The data showed that credit costs were $3.3 billion, with net charge-offs of $2.3 billion and a net reserve build of $973 million.

“Let’s take a second to add a little bit of context to our thinking surrounding this number in light of the unique environment of the last several weeks,” Chief Financial Officer Jeremy Barnum said during the conference call. “Our first-quarter allowance is anchored on the relatively benign central case economic outlook, which was in effect at the end of the quarter. But in light of the significantly elevated risks and uncertainties at the time, we increased the probability weightings associated with the downside scenarios in our [current expected credit loss (CECL)] framework.” And amid the company’s assumptions of what lies ahead, J.P. Morgan has boosted its assumptions on unemployment to 5.8% for the year, up from 5.5%.

“It is important to note that the increase in the allowance is not, to any meaningful degree, driven by deterioration in the actual credit performance in the portfolio, which remains largely in line with expectations,” Barnum said on the call.

Forward guidance has kept the 3.6% net charge-off ratio in the card business that had previously been guided.

“Despite the recent downtrends in consumer and small business sentiment based on our data, spend, cash buffers, payment-to-income ratios, and credit utilization are all in line with our expectations,” he said.

Average deposits were down 2% year on year and flat sequentially.

Within the card portfolio, loan balances were up 10% due to strong account acquisition, per Barnum’s commentary.

“In light of market conditions, we are adopting a cautious stance on the investment banking outlook,” he said during the call. “While client engagement and dialogue is quite elevated, both the conversion of the existing pipeline and origination of new activity will require a reduction in the current levels of uncertainty.”

Asked about the change in activity observed across consumer and corporate clients, Barnum said, “At a high level, I would say that obviously some of the salient news flow is quite recent. We’ve done some soundings and some checking both on the consumer side and on the wholesale side. I think on the consumer side, the thing to check is the spending data, and to be honest, the main thing that we see there is what would appear to be a certain amount of front-loading of spending ahead of people expecting price increases from tariffs.”

As for corporate clients, Barnum said, “Obviously they’ve been reacting to the changes in tariff policy, and at the margin that shifts their focus away from more strategic priorities with obvious implications for the investment banking pipeline outlook towards more short-term work optimizing supply chains and trying to figure out how they’re going to respond to the current environment. So as a result, I think we would characterize what we’re hearing from our corporate clients as a little bit of a wait-and-see attitude.”

Asked later during the call about the economic environment, Dimon said that “if the economy gets worse, credit losses will go up, volumes can change, yield curves can change. We’re not predicting all of that.”

He said that according to J.P. Morgan economists, the odds of a recession are about 50%, “so I’ll just refer to that. Obviously, if there’s a recession, credit losses will go up, and other factors will change too.”

In discussing consumer spending and the slowdown on cards, Barnum said, “We obviously saw the airlines discuss what they are seeing as headwinds for them, specifically in airline travel, and we’re seeing that too through the card spend. It’s not obvious to us that that’s necessarily an indicator for broader patterns… Another thing that we are seeing looking at the April data is what would appear to be a little bit of front-loading of spending, specifically on items that might have prices go up. So, you see people behaving rationally, and I have noted, you hear anecdotes, and I’ve seen evidence of companies specifically advertising, ‘We have pre-tariff inventory’ and so on and so forth. So, it’s not that surprising that you’re seeing that a little bit in the spending data.”

“When we look at our card data and also our cash buffers in people’s checking accounts, of course, it is true that it is relatively weaker in the lower-income segment,” he said. “But when you take a step back and you ask, ‘Are we seeing signs of distress in the lower income segment?’ The answer is no.”

In a bit of contrary movement, some of the increases in spending that are in evidence have been coming from the lower-income segment, Barnum said.

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