JP Morgan Chase & Co., an American multinational investment banking company, has reportedly announced that its Q1 profit has dropped by around 70%. The firm apparently has accelerated its reserves for potentially bad loans by around USD 7 billion. JP Morgan also warned that it could accelerate those reserves even further during the period of April- June.
Sources cite that the company is preparing for the possibility that its customers, ranging from oil companies to credit card holders, may fail to pay back billions of dollars in loans because of the COVID-19 pandemic. The bank’s profit fell to USD 2.87 billion in Q1 2020 from USD 9.18 billion in Q1 2019.
Apparently, the COVID-19 pandemic has closed businesses across the nation and put Americans out of work. Debtors who were efficiently paying their installments are now struggling financially. These people are at risk of defaulting on their debts. The U.S. government and the Federal Reserve are taking proactive steps to ensure the proper functioning of credit markets and to get badly needs funds to small businesses and households.
Jamie Dimon, CEO at JPMorgan said that it was essential for the company to set aside considerable funds given the probability of a severe recession in the forthcoming time. The last time when the bank had to upsurge such a large amount in reserve for the bad loans was the Q1 of 2009 — in response to the recession back then.
For the record, the bank is one of the largest credit card issuers in America. People who lost their jobs are now at risk of defaulting on credit card accounts. The company has also witnessed loan losses in the wholesale lending division from the oil and gas businesses that directly deal with American consumers like retailers.
Meanwhile, Wells Fargo, the largest mortgage lender in the U.S., has also announced a profit drop of 95% as it increased bad loan reserves by USD 3.1 billion.