Jamie Dimon says U.S. consumers are ‘coiled, ready to go’ with $2 trillion more in checking accounts

Jamie Dimon, CEO of JPMorgan Chase & Co., gestures during an interview with Bloomberg Television at the JPMorgan Global Markets conference in Paris, France on Thursday March 14, 2019.

Christopher Morin | Bloomberg | Getty Images

JPMorgan Chase CEO Jamie Dimon said government stimulus programs to reduce suffering during the coronavirus pandemic have protected consumers from savings – and that bodes well for the ongoing economic recovery.

One of the only weak spots in JPMorgan’s earnings report for the first quarter was subdued credit demand as everyone from credit card borrowers to multinationals paid off their debts, the bank said on Wednesday.

The bank’s total lending declined 4% year over year to $ 1 trillion, although deposits held with JPMorgan rose 24% to $ 2.28 trillion. While this would usually be a bearish sign in a weakening economy, in this case it just means loading consumers with cash as vaccines allow for wider reopening, Dimon said Wednesday while speaking to reporters.

“What happened is that the consumer has so much money that they are paying back their credit card loans, which is good,” Dimon said. “Your balance sheet is in great, great shape – wrapped, ready to use and starting to spend. Consumers have $ 2 trillion more cash in their checking accounts than they did before Covid.”

Many Americans have received three rounds of stimulus checks and increased unemployment benefits since the pandemic began to forestall a wave of absenteeism expected last year. They saved about 30% of their stimulus checks from each round and recently put more money into paying off debt, 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 rebound as more people are vaccinated, which will contribute to an overall recovery in credit demand in the second half of 2021, she said.

Government incentives, as well as the improvement in employment rates and the introduction of vaccines earlier this year, were cited as reasons why banks began releasing some of the tens of billions of dollars of reserves set aside last year for loan losses . JPMorgan released reserves of $ 5.2 billion in the first quarter. This is the biggest sign yet that the US banking industry is now expecting less credit losses than it feared.

Something similar happened for companies, said Dimon. Large companies were able to withdraw bank loans after raising money in the stock or bond markets, while smaller companies took advantage of the government’s paycheck protection program.

“We believe [companies] They have about $ 2 trillion in excess cash on their balance sheets, “said Dimon.” When they raise money in public markets, they can repay loans to banks. This is not bad news about loan demand, it is actually good news. “

According to Mike Mayo, a seasoned banking analyst at Wells Fargo, JPMorgan sucked up around 20% of all new deposits with banks last year. However, this has in some ways made it a victim of its own success.

The influx of deposits – with no locations to operate – is putting pressure on JPMorgan’s efforts to stay within international regulatory constraints. The company is nearing the limits of leverage as temporary exemptions for the Federal Reserve expire, managers warned, forcing the bank to raise more capital.

“When a bank has leverage, it lowers the limit of each deposit,” Piepszak told analysts during a conference call. “Regulators should consider the right outcome to require banks to hold additional capital for further deposit growth.”

The momentum caused JPMorgan’s loan-to-deposit ratio to decline to 44% in the first quarter, compared to 57% a year ago.

“There is definitely a deposit problem at JPMorgan,” Mayo said. “It is not optimal to set up a franchise to collect deposits and not be able to fully monetize the value of those deposits.”

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