vrijdag 14 juli 2017

The "Missing Slide": JPM Credit Card Charge-Offs Jump To Four Year High

While JPM was quick to provide all the favorable data in its earnings presentation (and not so favorable when it comes to the sharp drop in its markets sales and trading division) one thing was conspicuously missing: the slide on "Mortgage Banking And Card Services" which has traditionally been part of the bank's earnings presentation and was certainly featured prominently last quarter...


Of course, it is possible that JPM simply forgot to include it, or perhaps it did not want to bring attention to a troubling trend: the concerning increase in net credit card charge-offs, which last quarter rose to just shy of $1 billion, and which prompted JPM to report an unexpected increase in credit costs (driven also by JPM's write-down in its student loan portfolio). So we decided to recreate the chart using data JPM disclosed in its earnings supplement, and which may explain why JPM unexpectedly forgot to add that particular slide. It shows that JPM's net credit card chargeoffs surpassed $1 billion as of June 30, and we the highest going back to March 2013...


As a reminder, in his Q2 commentary while Jamie Dimon was quick to note that "the U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking", although there was little discussion of this troubling credit cardtrend, with the only commentary on the rising charge offs in the earnings report the following, which did observe a notable increase in loan loss reserve build for the Card segment: The provision for credit losses was $1.4 billion, an increase of $193 million, driven by higher net charge-offs and a higher reserve build. The current quarter reserve build of $425 million included $350 million in Card, $50 million in Business Banking, and $25 million in Auto, driven by both loan growth and higher loss rates, predominantly in Card. Why is this notable? Because as we discussed last month using the S&P/Experian Bandcard Default Index, "Credit Card defaults has surged the most since the financial crisis." And incidentally, since then it's only gotten worse with the latest data showing that as of May, the rate of defaults on credit cards have risen to 3.53%, up more than 13% from a year ago...


Is it time to start worrying about the spending capacity of the US consumer?

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