JPMorgan, fresh off its most profitable quarter of 2020, is trying to strike a difficult balance. Clearly, there’s still pain among small businesses and unemployed workers. “There are a lot of people who are under a lot of stress and strain who won’t survive another year” of total economic lockdown, Dimon said during a call with analysts.
But this is an unprecedented year for the economy. Consider, for instance, that Americans’ incomes fell in August by the most in three months after the government’s extra unemployment benefits expired, yet combined spending on JPMorgan’s debit and credit cards in September increased year-over-year for the first time since Covid-19 shutdowns began. The bank’s total deposits have surpassed $2 trillion, up more than 30% from last year, propelling it to the top spot in U.S. retail deposits for the first time. Yet total loans rose just 1% during the same period, dropping JPMorgan’s loans-to-deposits ratio to just 49%, indicating the bank is lending less relative to its capacity to do so. More than half of consumer loans in payment deferral at the end of the second quarter have exited those plans, with about 92% of those that came out of deferral programs now current on their payments.
This all points to a much murkier path forward than JPMorgan’s initial headline figure on loan-loss provisions seemed to indicate. What happens to those consumers who remain squarely in deferral? Will the bank start extending more loans and take greater risk — and if not, what becomes of those turned away? Are people increasing credit-card spending for good reasons or because they’re using a $3 trillion buffer to make up for the lack of additional federal aid? “We’ve built significant reserves, so we’re prepared for it to be a delay rather than change the outcome” of losses, Piepszak said.
It’s probably best to avoid drawing sweeping conclusions from JPMorgan’s results. Yes, it’s fair to assume that Bank of America Corp. and Wells Fargo & Co. probably won’t set aside large sums to cover potentially souring loans when they announce third-quarter earnings on Wednesday, leaving the nation’s four biggest lenders far short of analysts’ estimates for $10 billion in additional loan-loss provisions in the third quarter. It’s an unambiguous sign that things at least aren’t getting worse for the U.S. economy as a whole.
As for whether the world’s biggest economy has reached a turning point? That remains inconclusive.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.