'If...if...if...': The same word kept coming up on JPMorgan's earnings call, showing how the nation's largest bank has no idea what's going to happen to the US economy
- JPMorgan execs spent a first-quarter earnings call telling analysts that the future is incredibly uncertain in light of the coronavirus pandemic, and there were many directions the firm's results could take.
- CEO Jamie Dimon and CFO Jennifer Piepszak used the word "if" or some variation of "I don't know" more than 12 times on the call.
- Since the close of the first quarter, for example, the bank's economists doubled their estimate for the US unemployment rate, calling for it to spike to 20% this year.
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If that scenario were to hold. If we avoid a prolonged downturn. If the economy gets worse.
Those three sentences were spoken by JPMorgan execs on the company's first-quarter earnings call on Tuesday, three among many that exposed how the largest US bank - one that successfully navigated the 2008 financial crisis - has little idea about what the future will hold.
With interest rates back to near zero, and a likely recession looming, or already upon us, there isn't a ton of good news in store for the banks. The question is just how bad it will get over the coming months.
JPMorgan CFO Jennifer Piepszak and CEO Jamie Dimon used the word "if," or variations of "I don't know" more than 12 times during the call, according to Business Insider's calculations. The phrases were a simple admittance to analysts that bank leaders can't see the future and will be heavily reliant on how soon and how successfully the US economy can be started back up again and start to put the coronavirus pandemic behind it.
JPMorgan said its base case is that unemployment peaks in the second quarter, and that growth rebounds in the second half. But the company added that it's very possible the outlook is too rosy. Piepszak, for example, said that JPMorgan economists' assumptions for the unemployment rate doubled from 10% to 20% after the quarter ended.
"All else equal, and of course, the one thing - probably the only thing we know for sure, Mike - is that all else won't be equal when we close the books for the second quarter," she said, according to a transcript provided by Sentieo, in answer to a question from Wells Fargo analyst Mike Mayo.
"A lot will depend on the ultimate effect of these extraordinary programs and how effective they can be in bridging people back to employment," she said. "We're going to still have a number of unknowns, I would say, at the end of the second quarter, but we're going to learn a lot through these next few months that will inform our judgment."
The bank said first-quarter profit slumped to $2.9 billion, undercut by an $8.3 billion provision that was its biggest in a decade, according to reports. That included $6.8 billion that JPMorgan set aside to cover future loan losses. Return on equity shrank to 4%.
Analysts zeroed in on the bank's loan-loss reserves, with UBS analyst Saul Martinez telling clients in an email blast to "focus on credit." About two-thirds of the total, or $4.4 billion, was for credit cards loans. JPMorgan is one of the biggest credit-card lenders in the country.
Analysts pressed the company for details about its underlying assumptions, while Dimon encouraged them to recognize that the models didn't foresee the economy contracting by 40% or unemployment spiking as fast as it has.
"We can serve our clients, and we're going to give you more detail on this, but it's happening as we speak," Dimon said. "I think people - you're making too much of a mistake trying to model it."
Even in trading, where revenue surged 32% to $7.2 billion, the execs admitted that they couldn't be sure whether they could rely on continued strength into the second quarter. Markets gyrated wildly in March, bringing volatility that boosted JPMorgan's market-making businesses.
"In terms of outlook, it goes without saying that it's too early to project this performance going forward," Piepszak said. "In fact, low rates and low economic activity may even be a headwind."
Dimon said the company will know a lot more by the end of June, when it must next close its books. While it's seen very little in terms of actual credit-card delinquencies and charges, those will likely increase, he said. A fourth round of government stimulus may even be in the future as well as plans to start the economy back up.
"A rational plan to get back to work is a good thing to do," Dimon said. "Hopefully, it will be sooner than later, but it won't be May. You talk about June, July, August, something like that."
He added: "We hope for the best, which is that you have that recovery, and plan for the worst."
