Government stimulus programs aimed at reducing suffering during the coronavirus pandemic have left consumers on par with 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 the demand for off loans, as everyone, from credit card borrowers to multinational companies, paid off their debts, he said Wednesday. the bank.
Total bank lending fell 4% from a year earlier to $ 1 trillion, although JPMorgan deposits rose 24% to $ 2.28 trillion. While it would normally be a bearish sign in a weakened economy, in this case, it only means consumers will be loaded with cash as vaccines allow for a wider reopening, Dimon said Wednesday during a call to reporters.
“What happened is that the consumer has so much money that they are paying off their credit card loans, which is good,” Dimon said. “Their balance sheet is in great shape, excellent, rolled up, ready to start and start spending money. Consumers have two trillion dollars more in cash in their checking accounts than before Covid.”
Many Americans have received three rounds of stimulus checks and increased unemployment benefits since the pandemic began, which helped prevent a wave of defaults expected last year. They’ve saved about 30 percent of their stimulus checks each round and recently spent more money on debt repayment, said CFO Jennifer Piepszak.
According to Piepszak, consumer spending on debit and credit cards has returned to pre-pandemic levels, despite lower spending on travel and entertainment. These categories should pick up as more people are vaccinated, which will contribute to a global recovery in loan demand during the second half of 2021, he said.
Government stimulus, along with improved employment rates and the arrival of vaccines earlier this year, were cited as reasons why banks have begun releasing some of the tens of billions. of dollars in loan loss reserves that they set aside last year. JPMorgan released $ 5 billion in reserves in the first quarter, the biggest sign that the U.S. banking industry now expects to have fewer loan losses than it feared.
Something similar happened for companies, Dimon said. Large companies were able 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.
“I think [companies] having something like $ 2 trillion in excess cash on the balance sheets, “Dimon said.” When they raise money in public markets, they can repay loans to banks. It’s not bad news about loan demand, it’s good news. “
JPMorgan managed to absorb about 20% of all new deposits that came to banks over the past year, according to Mike Mayo, a veteran Wells Fargo banking analyst. However, this has made him a victim of his own success, somehow.
The influx of deposits (with no places to deploy them) is adding pressure to JPMorgan’s efforts to stay within its international regulatory constraints. The firm is approaching leverage limits as temporary exemptions from the Federal Reserve expire, executives warned, forcing the bank to raise more capital.
“When a bank has leverage restrictions, this reduces the marginal value of any deposit,” Piepszak told analysts during a conference call. “Regulators should consider whether the right outcome is to require banks to add additional capital for further growth in deposits.”
The dynamics meant that JPMorgan’s loan and deposit ratio fell to 44% in the first quarter, compared to 57% the previous year.
“There’s definitely a deposit enigma at JPMorgan,” Mayo said. “It’s not optimal to build a franchise to collect deposits and not be able to fully monetize the value of those deposits.”
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