In the midst of the coronavirus crisis, a strange thing happened: America’s largest bank made lower profits than it did a year ago, before the epidemic hit the economy.
Taken together, the third quarter results of both banks show that business and consumers have been surprisingly good in the month, as the epidemic plunged the US into recession. But leaders from both banks warned that the economy was not out of the woods.
The results gained momentum because banks did not have to accumulate enough money to cover future loan losses. But officials said they have not yet changed their views that significant damage is happening in the future. They have large reserves for potential losses and predict that unemployment will be high next year and more customers may start defaulting on their loans.
JPMorgan’s chief executive James Dimon warned that without more public support for the economy it could get worse.
“A good, well-designed stimulus package will increase our chances of getting better results, but there’s a lot of uncertainty that we’re not saying is certain,” Mr Dimon told reporters on the phone.
JPMorgan has set about 34 34 billion for potential damage. If the economy grows faster, it could be 10 10 billion more than it needs, Mr. Dimon said. In a double whammy, he said, the bank may need another 20 20 billion in reserves.
The coronavirus recession is flare-up like no other. Unemployment benefits passed at the onset of the epidemic, stimulus checks and other government measures kept the economy afloat. Customers and businesses have supported so far. But those steps are being completed, and legislators are at a standstill in the second round of excitement.
Trading revenue rose 17% on Citigroup in the third quarter.
Photo:
Andrew Seng for The Wall Street Journal
JPMorgan and Citigroup are the first major U.S. banks to report third-quarter results. Their connections with American consumers and companies around the world in particular make them a bellwether for the larger economy. Their reflection, however, may be skewed: they and other big banks serve relatively wealthy Americans, and the strength of this quarter is partly a reflection of the accounting rules that forced them to experience more pain in the first quarter.
The coronavirus economy is difficult to analyze. Many people with secure jobs, stuck at home and with less space to spend money, have done well. But millions of Americans are out of work or even hungry. Companies including Walt Disney Co.
And Allstate Corpo.
Has announced sporadic work in recent days. Further shutdowns and a potential second wave of coronavirus infection could also hurt the economy.
An indication of unequal recovery: JPMorgan took out a record number of auto-loans in the third quarter, as e-investors took advantage of lower interest rates to finance larger purchases. Mortgage fees also increased.
Yet consumers are spending less on their credit cards than a year ago, with 8% less spending on JPMorgan and 10% less on Citigroup. (Both are up about 20% from the second quarter.)
So far, loans to banks have been relatively healthy. JP Morgan had a 1.18 billion loan and Citigroup had a 1.92 billion loan, down from the second quarter.
For example, credit-card loans, which both banks say are the most vulnerable to epidemics, are performing better than a year ago, with JPMorgan’s only 0.69% loan and Citigroup’s 90-day late 1.01%. JPMorgan, Citigroup and others have temporarily stopped paying credit card and other debts to customers, but both banks have said most of their card customers are out of those programs and making timely payments.
Bank officials said they expect more customers to fall behind on loans next year. It was not clear, they said, if the government’s stimulus measures had so far saved the economy or only delayed the sharp result.
“The question [is] Whether the bridge will be long and strong enough to bring people back into employment and bring small businesses back to normalcy. Jennifer Pipszke, chief financial officer at JPMorgan, said. “I think it remains to be seen.”
JPMorgan’s forecast for the UP economy has improved slightly, but he still expects unemployment to be above 7% for all by 2021. Citigroup’s outlook for the U.S. economy has fallen sharply over the coming years, although it is still roaring as JPMorgan’s unemployment declines. To 6.4%.
Both banks beat analysts’ expectations, although their results were far from perfect. JPMorgan’s profits fell 4% and revenue fell 0.5%. Citigroup’s profits fell 34%, and revenue fell 7%.
Profits were boosted by slow reserve buildings. JPMorgan has set aside 11 1111 million for potential future loan losses, far less than expected, and has booked 10.47 billion in the second quarter. Citigroup has set પણ 2.26 billion, down from $ 7 billion in the previous two quarters. Both banks were able to release some of their previous reserves.
At both banks, Wall Street operations outperformed consumer units. It follows a pattern that has shaped the banking industry during the recession. Consumers have struggled. But traders have benefited from volatile markets and investors have benefited as weaker companies raise cash and sell stocks and bonds to meet the downturn.
Trading revenue at JPMorgan increased by 30% and Citigroup by 17%.
Write to David Benoit at [email protected]
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