JPMorgan, Citigroup signals that economy is not out of the woods



In the midst of the Coronavirus crisis, a curious thing happened: America’s largest bank made more profit than it did a year ago, before the epidemic ravaged the economy.

Taken together, the third quarter results of the two banks show that businesses and consumers held up surprisingly well over the months as the epidemic plunged the US into a recession. But the leaders of both banks warned that the economy is not out of the woods.

The results were boosted as banks did not have to invest as much money to cover future loan losses. But officials said they have not yet changed their views that significant losses are occurring in the future. They hold large reserves for potential losses and have predicted that next year unemployment will remain high and more customers may start defaulting on their loans.

JPMorgan chief executive James Dimon warned that without more public support for the economy, it could be worse.

“A good, well-designed incentive package will simply increase the chance that we will get better results, but there is so much uncertainty that we are not saying it is certain,” Mr. Dimon said on a call with reporters.

JPMorgan has about $ 34 billion set for potential losses. If the economy picks up, it could be $ 10 billion more than needed, Mr. Dimon said. In the double dip recession, he said, the bank may require $ 20 billion in reserves.

Coronavirus meltdown is like no other. The widespread expansion of unemployment benefits, incentive checks and other government measures in the epidemic has so far affected American consumers and businesses, which sustain the economy. But those measures are underway, and lawmakers are at a deadlock in another round of provocation.

Business revenue jumped 17% in the third quarter to City.


Photo:

Andrew Seng for The Wall Street Journal

JP Morgan and Citigroup are the first major US banks to report third quarter results. Their relationships with American consumers and companies around the world usually make them a bell for the larger economy. Their reflection, however, may be skewed: They and other large banks serve relatively affluent Americans, and the strength of this quarter is partly a reflection of accounting rules, which make them anticipate more pain in the first quarter. Forces it.

The coronovirus economy is difficult to parse. Many have been well-to-do, with safe jobs, at home and fewer places to spend money. But millions of Americans are out of work or even hungry. Companies including walt disney Co.

And allstate Corp.

Has announced a glimpse of layoffs in recent times. More shutdowns, and a possible second wave of coronovirus infection, can also harm the economy.

A sign of uneven recovery: JPMorgan created a record number of auto loans in the third quarter, as borrowers took advantage of lower interest rates to reduce large purchases. Mortgage fees also increased.

Yet customers are still spending less on their credit cards than they did a year ago, with 8% on JP Morgan in total spending and 10% in downtown. (Both increased by about 20% from the second quarter.)

Until now, loans to banks remain relatively healthy. JPMorgan wrote off $ 1.18 billion in debt and Citigroup $ 1.92 billion, both down from the second quarter.

For example, credit card debt, both banks say, is the area most susceptible to the epidemic, with only 0.69% of JPMorgan’s debt and 1.01% of Citigroup’s late 90-day performance doing better than a year ago. Have been. JPMorgan, Citigroup and others have temporarily given up payments on credit cards and other loans to customers, but both banks have said that the majority of their card customers are out of those programs and making payments on time.

However, bank officials said they expect more consumers to lend next year. It was not clear, he said, if government stimulus measures have so far saved the economy or merely delayed a sharp decline.

“questions [is] Jennifer Peepapak, chief financial officer of JP Morgan, said whether this bridge would be long and strong enough to employ people and get small businesses back. “I think it remains to be seen.”

JP Morgan’s forecast for the US economy has improved slightly, but it still expects unemployment to be above 7% for all of 2021. Citigroup’s outlook for the US economy grew more quickly the following year, though it is still declining with JP Morgan’s unemployment. Up to 6.4%.

Both banks beat analysts’ expectations, although their results were far from over. JPMorgan’s profits rose 4% and revenue slipped 0.5%. Citigroup’s profit dropped 34% and revenue fell 7%.

Profits were boosted by slower reserve builders. JPMorgan set aside $ 611 million for potential future debt losses, which was lower than expected and reported $ 10.47 billion in the second quarter. Citigroup invested $ 2.26 billion in the last two quarters, down from $ 7 billion. Both banks were able to release their previous reserves.

At both banks, Wall Street operated better than consumer units. It follows a pattern that has shaped the banking industry during the recession. Consumers have struggled. But traders have benefited from uncertain markets and investment bankers have made profits as nervous companies raise cash and sell stocks and bonds to get out of the recession.

Trading revenue jumped 30% at JPMorgan and 17% at Citigroup.

Write David Benoit at [email protected]

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