On Tuesday, JPMorgan reported that it is building its reserve for the eventuality that their customers, ranging from consumer to industrial scale, could fail to pay back loans of billions of dollars while several market sectors fluctuate on obtaining loans. Jamie Dimon, the Chairman and CEO of JPMorgan Chase and Co. said, in their press release, that the first quarter delivered some unprecedented challenges and required them to focus further, to remain strong, resilient and well-positioned to support their stakeholders.
The coronavirus pandemic that hit a global scale, killing more than a 120,000 over the past month alone, has left more than 10 million American residents, out of jobs, in one week. Since early March, unemployment claims have soared up a whopping 3000%. Debtors who were paying installments on their loans, just fine, till last week are now scrambling to do the just that. Consumers and enterprises are at risk of defaulting on their loans. So, the US Government and Federal reserve are adopting unparalleled measures to ensure that the financial institutions can function properly while securing the economic stimulus that households and businesses desperately need, right now.
JPMorgan CFO Jennifer Piepszak told reporters that credit losses were “a best guess” based on the unemployment rate rising to more than 10% of US population and an assumption of recovery in the latter half of FY20. She added that after the end of Q1, the bank’s economists revised estimate for U.S. unemployment to 20% while projecting the US GDP to drop by 40% in Q2 of this year.
JPMorgan has a #1 rank in Global IB fees while being one of the largest banks in US, in terms of asset. Now, they have reported a profit fall from $9.18 billion in Q1 FY19 to $2.87Bn in Q1 FY20. In their press release, they added that their Q1 profits have dropped nearly 70% even as they secured a net reserve build of $6.8Bn, in preparation of the loan defaults, COVID-19 outbreaks could cause. They reported loan losses in their wholesale lending division from the oil and gas industry and medium-scale businesses in US.
CEO Dimon assured that they are supporting their wholesale clients throughout this challenging period, as they drew over $50 billion, on existing lines and provided over $25 billion of new credit extensions in March for companies most impacted by the pandemic. He acknowledged, however, that It was necessary for the bank to set aside significant funds “given the likelihood of a fairly severe recession”
The silver lining in the bank’s results came from trading. Markets across the world were extremely volatile last quarter as the bull market in US came to a screeching halt in March. This gave Wall-Street brokers abundant opportunities to trade. JPMorgan’s stock and bond trading revenues rose 34% and 28%, respectively. Business Analysts were struggling to figure out how to measure the coronavirus’s impact on companies like JPMorgan as the bank’s Q1 decrease of $2 per share profit, missed estimates.
JPMorgan stated that they are doing “everything in our power to help the world recover from this global crisis.” To that end, JPMorgan has made a $50 million commitment to help address the immediate humanitarian crisis, as well as the long-term economic challenges that vulnerable people might face. The firm announced a $150 million loan program to help community partners get capital to undeserved small businesses and non-profits, particularly in the hardest hit communities.