JPMorgan Chase (NYSE: JPM) is currently the largest bank in the USA by total assets. Because of this status, JPMorgan is naturally able to feel the pulse of the country’s economy. The bank’s latest earnings conference call – for the first quarter of 2025 – was held last week and contained useful insights on the state of American consumers and businesses. The bottom-line is this: the US economy is facing turbulence, with a multitude of problems, but consumers and businesses still remain financially healthy
What’s shown between the two horizontal lines below are quotes from JPMorgan’s management team that I picked up from the call.
1. The US economy is facing turbulence, with problems including tariffs, trade wars, inflation, and high asset prices
The economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and “trade wars,” ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility. As always, we hope for the best but prepare the Firm for a wide range of scenarios.
2. Net charge-offs for the whole bank (effectively bad loans that JPMorgan can’t recover) rose from US$1.9 billion a year ago; management increased the probability weightings for downside scenarios in its CECL (current expected credit losses) framework for credit allowances in 2025 Q1 because of higher risks and uncertainties from the environment seen in the last few weeks; the increase in allowance is not driven by deterioration in credit performance; Consumer & Community Banking’s net charge-offs surged significantly from US$0.72 billion a year ago
Credit costs were $3.3 billion with net charge offs of $2.3 billion and a net reserve bill of $973 million…
…With this quarter’s reserve bill, firm’s total allowance for credit losses is $27.6 billion. Let’s take a second to add a little bit of context to our thinking surrounding this number in light of the unique environment of the last several weeks. Our first quarter allowance is anchored on the relatively benign central case economic outlook, which was in effect at the end of the quarter. But in light of the significantly elevated risks and uncertainties at the time, we increased the probability weightings associated with the downside scenarios in our CECL framework. As a result, the weighted average unemployment rate embedded in our allowance is 5.8%, up from 5.5% last quarter, driving the $973 million increase in the allowance. So with that in mind, the consumer build of $441 million was driven by changes in the weighted average macroeconomic outlook. The wholesale build of $549 million was predominantly driven by credit quality changes on certain exposures and that lending activity, as well as changes in the outlook…
…The increase in the allowance is not to any meaningful degree driven by deterioration in the actual credit performance in the portfolio which remains largely in line with expectations…
…Credit costs were $2.6 billion, reflecting net charge-offs of $2.2 billion, up $275 million year on year, pred ominantly driven by the seasoning of recent vintages and card with delinquencies and losses in line with expectations.
3. Management is seeing recent downtrends in consumer and small business sentiment, but consumers and small businesses remain financially healthy; management is seeing consumers front-load spending ahead of tariffs; management is seeing small businesses face more challenges than large businesses because of tariffs-related uncertainty; management is seeing a drop in travel-spending among consumers, but it’s not indicative of broader patterns; management is seeing relatively weaker spending from lower-income consumers, but they are not in distress
Consumers and small businesses remain financially healthy despite the recent down trends in consumer and small business sentiment. Based on our data, spend, cash buffers, payment to income ratios, and credit utilization are all in line with our expectations…
…On the consumer side, the thing to check is the spending. And to be honest, the main thing that we see there would appear to be a certain amount of front-loading of spending ahead of people expecting price increases from tariffs…
…In terms of our corporate clients, obviously, they’ve been reacting to the changes in tariff policy… Across the size of the clients, I think smaller clients, small business, and smaller corporates are probably a little bit more challenged. I think the larger corporates have a bit more experience dealing with these things and more resources to manage…
…We obviously saw the airlines discuss what they are seeing as headwinds for them, specifically in airline travel. And we’re seeing that too through the card spend. It’s not obvious to us that that’s necessarily an indicator for broader patterns…
…When we look at our card data and also our cash buffers and people checking accounts, of course, it is true that it is relatively weaker in the lower income segment. But when you take a step back and you ask, are we seeing signs of distress in the lower income segment? The answer is no. So sure, the margin cash buffers are lower, and you see some rotation of spend and spending is a little bit weaker than it was in the peak spending moments. But actually, some of the increases in spending that we’re seeing in April are actually coming from the lower income segment. So no evidence of distress, I would say.
4. JPMorgan’s credit card outstanding loans was up double-digits year-on-year
Card outstandings were up 10% due to strong account acquisition.
5. Auto originations were up year-on-year
In auto, originations were $10.7 billion, up 20%, driven by higher lease volume.
6. JPMorgan’s investment banking fees had good growth in 2025 Q1, with growth in debt underwriting fees but a decline in equity underwriting fees, signalling higher appetite for refinancing activity from companies; management is seeing companies adopting a wait-and-see attitude when it comes to capital markets activities because of tariffs-related uncertainty in the current environment
IB fees were up 12% year on year, and we ranked number one with wallet share of 9%. In advisory, fees were up 16%, benefiting from the closing of deals announced in 2024. Debt underwriting fees were up 16%, primarily driven by elevated refinancing activity, particularly in leveraged finance. And equity underwriting fees were down 9% year on year, reflecting challenging market conditions. In light of market conditions, we are adopting a cautious stance on the investment banking outlook. While client engagement and dialogue is quite elevated, both the conversion of the existing pipeline and origination of new activity will require a reduction in the current levels of uncertainty…
…In terms of our corporate clients, obviously, they’ve been reacting to the changes in tariff policy. And at the margin, that shifts their focus away from more strategic priorities with obvious implications for the investment banking pipeline outlook towards more short-term work, optimizing supply chains, and trying to figure out how they’re going to respond to the current environment. So as a result, I think we would characterize what we’re hearing from our corporate clients as a little bit of a wait-and-see attitude.
7. Management expects credit card net charge-offs for 2025 to be in line with previous guidance because of the mechanical way credit card charge-offs work, and not because management thinks credit card net charge-offs will really be healthy as the year progresses
On credit, we expect the card net charge-off rate to be in line with our previous guidance of approximately 3.6%…
…[Question] No change to the full year credit card net charge-off forecast. How do we square that with the rising recession risk?
[Answer] We should have not given you that forecast. We don’t know what the number is going to be. I would say that’s a short-term number. And based on what’s happening today is there’s a wide range of potential outcomes… There are some mechanical elements to the way card charge-off works. That means that it’s pretty baked, pretty far out of time a couple of quarters… It just doesn’t necessarily tell you that much about what might actually happen through the end of the year, even if unemployment were to increase significantly, it probably wouldn’t flow through the charge-offs until later.
8. Management is now incorporating 3 interest rate cuts for 2025, up from the previous expectation of 1 cut
If you remember last quarter we said that we had one cut in the curve. I think, latest curve has something like three cuts.
9. JPMorgan’s economists think there’s a 50% chance of a recession
What I would say is our excellent economists, Michael Feroli, I call him this morning, specifically to ask him how they’re looking at their forecast today. And they think it’s about 50-50 for a recession. So I’ll just refer to that.
10. Management thinks inflation in the US will be sticky
We have sticky inflation. We had that before. I personally have told you I don’t think that’s going to go away, and that relates to that.
11. Management thinks the US dollar will remain the reserve currency globally
Obviously, the US dollar still is the reserve currency, and that isn’t going to change though some people may feel slightly differently about it.
12. Management thinks that the current situation is different from past cycles
[Question] You’ve been through many cycles. And I think we’re all interested in understanding how you think this next cycle is likely to progress. And I’m wondering, is there anything that you’ve seen in the past that looks like this or that you would suggest if any slowdown coming forward, is it more likely to be similar to what kind of prior cycle you’ve seen?
[Answer] This is different, okay? This is different. This is the global economy. And please read my chairman’s letter. The most important thing to me is the Western world stays together economically when we get through all this and militarily to keep the world safe and free for democracy. That is the most important thing… We obviously have to follow the law of the land, but it’s a significant change we’ve never seen in our lives.
Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. I don’t have a vested interest in any company mentioned. Holdings are subject to change at any time.