People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fort Smith, Arkansas, April 6, 2020.
Nick Oxford | Reuters
JPMorgan Chase just disclosed that rising job losses effectively wiped out most of its profit in the first quarter — and things may get far worse, the bank’s finance chief warned.
The bank said early Tuesday that it added a whopping $6.8 billion to reserves for loan losses in the quarter, meaning that it expects a surge in defaults across its sprawling retail and commercial lending operations.
But that increase, the largest JPMorgan has taken since the financial crisis, was based on an assumption that U.S. unemployment would be around “10%-plus” in the second quarter, CFO Jennifer Piepszak told reporters during a conference call.
“The latest view from our economists is that unemployment will hit 20% in the second quarter and recover in the back half of the year,” Piepszak said Tuesday.
That means that JPMorgan will likely have to plow more into reserves for the coming wave of loan defaults than it did in the first quarter, the CFO warned. The reserve-building moves “could be meaningfully higher in aggregate over the next several quarters relative to what we took in the first quarter, of course depending on the path of the economic recovery,” she said.
JPMorgan is the biggest U.S. bank by assets and a bellwether for the industry, so the bank’s actions will be closely watched by investors keen to understand the impact of the coronavirus on the economy. Millions of Americans have already lost jobs amid shutdowns tied to the pandemic. The St. Louis Fed has predicted job losses of 47 million, which would equal a 32.1% unemployment rate.
This story is developing. Please check back for updates.