By David Benoit
A curious thing happened in the middle of the coronavirus
crisis: America's biggest bank posted a higher profit than it did a
year ago, before the pandemic ravaged the economy.
JPMorgan Chase & Co. said Tuesday that third-quarter profit
rose 4% from a year ago, beating Wall Street estimates. Citigroup
Inc., too, delivered better-than-expected results.
Taken together, the two banks' third-quarter results show that
businesses and consumers held up surprisingly well in the months
since the pandemic plunged the U.S. into recession. But the leaders
of both banks warned that the economy isn't out of the woods.
The results were boosted because the banks didn't have to put
aside as much money to cover future loan losses. But executives
said they haven't yet changed their views that significant losses
are looming in the future. They continue to hold large reserves for
potential losses and predicted that next year unemployment would
remain high and more customers could start defaulting on their
loans.
JPMorgan Chief Executive James Dimon warned that without more
public assistance for the economy, it could grow worse.
"A good, well-designed stimulus package will simply increase the
chance we get better outcomes, but there is so much uncertainty
we're not saying that that's definitive," Mr. Dimon said on a call
with reporters.
JPMorgan has nearly $34 billion set aside for potential losses.
If the economy recovers apace, that might be $10 billion more than
it needs, Mr. Dimon said. In a double-dip recession, he said, the
bank could need another $20 billion in reserves.
The coronavirus recession has unfurled like no other. A massive
expansion of unemployment benefits, stimulus checks and other
government measures passed early in the pandemic have buoyed U.S.
consumers and businesses so far, keeping the economy afloat. But
those measures are running out, and lawmakers remain at an impasse
on a second round of stimulus.
JPMorgan and Citigroup are the first big U.S. banks to report
third-quarter results. Their connections to American consumers and
companies around the world typically make them a bellwether for the
larger economy. Their reflection, though, can be skewed: They and
other large banks tend to serve relatively affluent Americans, and
this quarter's strength is partly a reflection of accounting rules
that forced them to estimate more pain in prior quarters.
For bank analysts and investors, the results offered hope that
concerns of widespread loan defaults that have sent bank stocks
plunging this year might be overdone.
"There had been differences of opinion on the timing of when all
this would fall apart," said Kush Goel, an analyst at investor
Neuberger Berman. "Now, everyone seems to think we can get through
this, especially if there is more stimulus."
The coronavirus economy has been hard to parse. Many people with
secure jobs, stuck at home and with fewer places to spend money,
have fared well. But millions of Americans are out of work or even
going hungry. Companies including Walt Disney Co. and Allstate
Corp. have announced a glut of layoffs in recent days. More
shutdowns, and a potential second wave of coronavirus infections,
could also harm the economy.
One sign of the uneven recovery: JPMorgan made a record number
of auto loans in the third quarter, as borrowers took advantage of
low interest rates to finance big purchases. Mortgage fees rose,
too.
Yet customers are still spending less on their credit cards than
a year ago, with total spending volume down 8% at JPMorgan and 10%
at Citigroup. (Both have risen nearly 20% from the second
quarter.)
So far, loans have remained relatively healthy for the banks.
JPMorgan wrote off $1.18 billion in loans and Citigroup wrote off
$1.92 billion, both down from the second quarter.
For instance, credit-card loans, the area both banks say is most
susceptible to the pandemic, are performing better than a year ago,
with only 0.69% of JPMorgan's loans and 1.01% of Citigroup's 90
days late. JPMorgan, Citigroup and others have temporarily let
customers skip payments on credit cards and other debt, but both
banks have said the majority of their card customers are out of
those programs and paying on time.
Bank executives said, though, that they expect more consumers to
fall behind on loans next year. It wasn't clear, they said, if the
government stimulus measures so far had rescued the economy or
merely delayed a sharper fallout.
"The question [is] whether the bridge will be long enough and
strong enough to bridge people back to employment and bridge small
businesses back to normalcy," JPMorgan Chief Financial Officer
Jennifer Piepszak said. "I think it remains to be seen."
JPMorgan's forecast for the U.S. economy improved slightly, but
it still expects unemployment to remain above 7% for all of 2021.
Citigroup's outlook for the U.S. economy next year grew more dour
than it had been, though it is still rosier than JPMorgan's with
unemployment falling to 6.4%.
Both banks beat analysts' expectations, though their results
were far apart. JPMorgan's profit rose 4% and revenue slipped 0.5%.
Citigroup's profit slumped 34%, and revenue fell 7%.
Profits were boosted by the slowing reserve builds. JPMorgan set
aside $611 million for potential future loan losses, far less than
expected and the $10.47 billion it booked in the second quarter.
Citigroup set aside $2.26 billion, down from more than $7 billion
in each of the past two quarters. Both banks were able to release
some of their previous reserves.
At both banks, the Wall Street operations fared better than the
consumer units. That follows a pattern that has shaped the banking
industry throughout the recession. Consumers have struggled. But
traders have benefited from uncertain markets and investment
bankers have profited as nervous companies raise cash and sell
stocks and bonds to ride out the downturn.
Trading revenue jumped 30% at JPMorgan and 17% at Citigroup.
Write to David Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
October 13, 2020 16:16 ET (20:16 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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