JPMorgan: Consumers Continue to Spend, but ‘Storm Clouds’ Loom

Consumers continue to wield their debit and credit cards online and at the register.

But the storm clouds, to use JPMorgan Chase CEO Jamie Dimon’s phrasing, are gathering.

In a first quarter that saw continued interest rate hikes from the Federal Reserve, the collapses of Silicon Valley Bank and Signature Bank, and fears of bank runs — the first few months of 2023 have been anything but sedate.

JPMorgan Chase’s latest results show debit and credit sales volumes were up 10% year over year to $387.3 billion (credit card sales volume was $266.2 billion, vs. $236 billion a year ago).

That metric was down sequentially from the fourth quarter of the end of last year, which included the holiday shopping season, where sales volumes was $411.1 billion.

Building the Loan Loss Reserves

As for anticipating what’s to come, JPMorgan boosted its reserves for anticipated loan losses by $1.1 billion.

Net loan charge-offs in the quarter were $1.1 billion. The company said in its supplemental earnings materials that the $499 million boost year over year was driven primarily by the card services business. The charge-off rate in the card services business was 2.1%, up from 1.4% last year.

The credit outlook is being driven by a macro outlook that management said on the call assumed, among other things, that peak unemployment would be 5.8%.

Consumers, too, should be prepared for interest rates to go up. In further evidence of the great digital shift, active mobile customers are up 9% year on year to 50.9 million customers.

In a statement that accompanied earnings, Dimon noted that while the economy is on “healthy footings” and consumers have strong balance sheets, “the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”

Deposits decreased: The total deposits held by the bank at the end of the latest quarter stood at $2.4 trillion, down about 8% from a year ago.

The deposit flows were volatile — driven by the aforementioned banking turmoil and by the fact that at least some clients were seeking higher-yielding returns in products such as CDs.

On the conference call with analysts to discuss results, Chief Financial Officer Jeremy Barnum said that — with a nod to the banking collapses – “as you would expect, we saw significant new account opening activity and meaningful deposit and money market fund inflows most significantly in the commercial bank business banking. Regarding the deposit inflows at the firm wide level, average deposits were down 3% quarter on quarter while end of period deposits were up 2% quarter on quarter, implying an intra quarter reversal of the recent outflow trend.”

The company has retained roughly $50 billion of deposit inflows at the end of the quarter, per the CFO’s comments.

Barnum said that credit costs in the quarter were $1.4 billion, reflecting a reserve build of $300 million in cards and $50 million in home lending. Delinquency levels continue to normalize across portfolios, according to commentary on the call.

Asked about credit, Dimon said, “I wouldn’t use the words’ credit crunch’ if I were you.” There will be a tightening of lending, he predicted, especially tied to real estate.

During the question and answer session with analysts, Dimon was asked about what the regulatory landscape might be for big banks post-SVB/Signature collapses.

“We’re hoping that everyone just takes a deep breath and looks at what happened and the breadth and depth of regulations already in place,” he said.

There may be limitations on held-to-maturity assets for banks and more scrutiny on exposure. “The outcome you should want is very strong community and regional banks, too,” said Dimon.