JPMorgan signals caution on credit as recession concerns rise

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JPMorgan Chase doesn’t see the credit cycle turning this year, but it’s starting to take steps for when it does.

The largest U.S. bank told shareholders to expect a slowdown in its lending book as it shows a “focus on high quality loans,” according to a presentation Tuesday at the company’s annual investor day. The firm kept its profitability target at the 17% return on tangible equity it achieved last year.

For now, the lender is expecting loss rates to stay near 2018 levels, which Chief Executive Officer Jamie Dimon last month described as “pristine.”

“We do believe there’s more room to run this cycle and we are optimistic global growth will stabilize,” Chief Financial Officer Marianne Lake said. Still, “recent declines in business sentiment have driven recessionary indicators higher. They are not flashing red, but they are off the floor."

The company also said that the difficult trading environment from the fourth quarter has carried over into the new year. The percentage decline in trading revenue is likely to be in the high teens in the first quarter from the $6.6 billion of revenue in last year’s first quarter, co-President Daniel Pinto said.

Declines in currencies and emerging markets units are leading the drop, he said. The bank expects net interest income to climb by an additional $2.5 billion in 2019 as the lender benefits from higher rates. The Federal Reserve raised its benchmark rate four times last year, but has signaled it could slow the pace of increases this year.

JPMorgan said overall expenses could jump by more than $2 billion to around $66 billion in 2019 as it expands into new states for the first time in more than a decade and constructs a new headquarters in New York.

Bloomberg News
Commercial lending Consumer lending Marianne Lake Jamie Dimon JPMorgan Chase