Government incentive programs aimed at reducing suffering during the coronavirus pandemic have left consumers aware of the savings – and this bodes well for the ongoing economic recovery, according to JPMorgan Chase CEO Jamie Dimon.
One of the only areas of weakness in JPMorgan’s first-quarter earnings report was a disqualified loan application, as everyone from credit card borrowers to multinational corporations paid their debts, the bank said on Wednesday.
Total bank lending fell 4% from a year earlier to $ 1 trillion, although deposits held at JPMorgan rose 24% to $ 2.28 trillion. Although this would normally be a rising sign in a weak economy, in this case it only means that consumers will be charged with cash, as vaccines allow for a wider reopening, Dimon said Wednesday during a call with reporters. .
“What happened is that the consumer has so much money that they pay their credit cards, which is good,” Dimon said. “Their balance sheet is in excellent shape, remarkable – wrapped up, ready to go and starting to spend money. Consumers have $ 2 billion more in cash in their checking accounts than they had before Covid.”
Many Americans have received three rounds of stimulus checks and increased unemployment benefits since the beginning of the pandemic, helping to prevent a wave of defaults that was expected last year. They saved about 30 percent of the stimulus checks in each round and recently invested more money in debt repayment, said Chief Financial Officer Jennifer Piepszak.
Consumer spending on debit and credit cards has returned to pre-pandemic levels, according to Piepszak, despite lower spending on travel and entertainment. These categories should return as more people are vaccinated, contributing to a general recovery in loan demand in the second half of 2021, she said.
Government stimulus, along with improved employment rates and the arrival of vaccines earlier this year, have been cited as reasons why banks have begun to release some of the tens of billions of dollars in loan loss reserves they have. -they put aside last year. JPMorgan released $ 5.2 billion in reserves in the first quarter, the biggest sign that the US banking industry now expects to have fewer loan losses than it feared.
A similar thing has happened to companies, Dimon said. Large companies managed to withdraw bank loans after raising money in the equity or fixed income markets, while smaller companies took advantage of the government’s Wage Protection Program.
“We are thinking [companies] they have something like $ 2 trillion in excess cash in their balance sheets, “Dimon said.” When they raise money on public markets, they can pay loans to banks. This is not bad news about the loan application, this is actually good news. “
JPMorgan has managed to accumulate about 20% of all new deposits flowing into banks in the past year, according to Mike Mayo, a veteran banking analyst at Wells Fargo. However, it has made her a victim of her own success in some respects.
The flow of deposits – with no place to place them – adds pressure to JPMorgan’s efforts to stay within the limits of international regulations. The firm is approaching leverage limits as temporary expirations in the Federal Reserve expire, managers warned, forcing the bank to raise more capital.
“When a bank is constrained by leverage, this reduces the marginal value of any deposit,” Piepszak told analysts during a conference call. “Regulators should consider whether requiring banks to raise additional capital for further deposits increases is the right outcome.”
The dynamics meant that the ratio of JPMorgan loans and deposits fell to 44% in the first quarter, compared to 57% a year ago.
“There’s definitely a deposit enigma at JPMorgan,” Mayo said. “It’s not optimal to build a franchise to raise deposits and not be able to fully monetize the value of those deposits.”
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