JPMorgan Chase’s half-full message on credit card loans

JPMorgan Chase’s credit card business is showing signs of life, persuading company executives that a resumption of loan growth is approaching, but maybe not yet.

While total personal and corporate banking loans declined 2% year-on-year in the third quarter, credit card spending continued to rise and overdue balances edged up. The rates at which customers make payments on their cards, while still unusually high, have started to return to more normal levels.

A question now is whether the growth in card spending will lead to increased revolving card balances, CFO Jeremy Barnum said on Wednesday. He seemed optimistic, but still cautious about the near-term outlook, saying customers who would typically have revolving debt appeared to be spending excess cash quickly, which could lead to growth in credit card balances.

“So that makes us relatively optimistic about the potential for increased card stocks with higher spend, but also for increased turnover rates and lower pay rates over the next year,” said Barnum to investors on Wednesday when the bank’s earnings call.

“It’s going to take time obviously, but that’s the central point of view.”

JPMorgan will likely have to spend more money to take advantage of growth opportunities in the credit card industry.

The company with $ 3.8 trillion in assets is distributing more marketing fees in order to get its “fair share of the spending growth” as the United States tries to emerge from the pandemic, Barnum said. He warned that card marketing spending could “increase a bit sequentially” as the bank seeks to generate more business. The company has not provided any guidance on its spending for next year.

JPMorgan launched the latest banking results by exceeding analysts’ estimates, thanks to another quarter of massive M&A advisory fees.

These charges, combined with the release of $ 2.1 billion of potential bad debt reserves that did not materialize, pushed net income to $ 11.7 billion for the third quarter, up 24% from compared to the same period in 2020. Earnings per share totaled $ 3.74, up 28% from the previous year’s quarter.

JPMorgan is often seen as a barometer for other major banks and, like much of the industry, continues to struggle with the growth of loans in personal and business banking.

In addition to the decline in consumer credit, commercial bank loans fell by 5% compared to the previous year.

Commercial and industrial loans, long a bread and butter trade for banks, decreased by 5% compared to the same quarter in 2020, while commercial mortgage loans decreased by 2%.

Still, there were some bright spots. The rates of use of lines of credit in midsize businesses have seen a “slight increase,” Barnum noted.

“In CRE, we see a pretty robust origination pipeline because we’ve kind of completely phased out all the credit withdrawals related to the pandemic, and we’re looking at that,” he said.

In consumer loans, additions to the bank’s mortgage portfolio exceeded prepayments, while auto loan originations of $ 11.5 billion were just behind the record set in the previous three months.

At the end of the third quarter, outstanding credit card loans stood at $ 143.2 billion, up 2% from the same period a year earlier, while outstanding loans automobiles was up 9.8% and home mortgages were down 4.8%.

JPMorgan Chase’s credit quality continued to improve during the third quarter. Net charges totaled $ 524 million, the lowest in recent history and about half the number in the quarter last year, Barnum said.

Analysts have generally touted JPMorgan’s better-than-expected results, although one wondered what would happen to the company’s earnings when it stopped releasing reserves.

“Over the longer term, the company’s loan growth will need to accelerate to maintain earnings growth after loan loss reserves disappear,” wrote Gerard Cassidy of RBC Capital Markets in a research note.

JPMorgan still has about $ 20.5 billion in reserves, Barnum said. This figure takes into account the lingering uncertainty about the trajectory of the pandemic as well as the current dynamics of the labor market, including the expiration in September of the extended unemployment benefits.

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