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Despite what CEO James Dimon reported to be strong credit card sales and low delinquency rates on loans, JPMorgan Chase reported a 42-percent drop in profits after surprising analysts by setting aside $900 million to cover an expected increase in loans that might go bad.
A year earlier, the bank released $5.2 billion it had reserved for the same purpose during the COVID War.
About a third of the new reserve has been prompted by Russia’ war in Ukraine, CFO Jeremy Barnum said, with the rest attributable to the risk that the U.S. Federal Reserve will raise interest rates too high too fast and throw the economy into a recession.
Credit card spending jumped 29 percent in the first quarter, according to the bank’s figures, and loans taken on credit cards was up 15 percent.
However, consumer and small-business bank deposits also rose 15 percent during the period, indicating that Americans still have a lot of cash, The Wall Street Journal noted.
The economy is strong and American households have positive balance sheets, Dimon said in reporting the number.
Still, the highest inflation rate in 41 years and uncertainty over the impact of the Ukraine war and its sanctions has increased the risk of recession, he added.
“Those are very powerful forces [that] are going to collide at one point,” he warned in comments quoted by the WSJ. “No one knows what’s going to turn out.”
JPMorgan’s mortgage loans plunged 37 percent during the year’s first quarter, due in large part to the Fed’s higher interest rates. Auto loans declined 25 percent, primarily because factories are making fewer cars due to shortages of key supplies, including computer chips.
The bank’s share price shed 3.2 percent on the announcement. The stock’s value has lost about 20 percent so far this year, compared to the S&P’s 7-percent contraction.
TRENDPOST: JPMorgan is prudent to set aside a reserve to cover bad loans. The stunning size of the reserve indicates that the bank sees a realistic possibility of a major recession within the next 12 months.