JPMor­gan, Citi pre­pare for credit losses

The Straits Times - - BUSINESS -

NEW YORK JPMor­gan Chase and Cit­i­group said they had set aside more money for credit card-lend­ing losses in the third quar­ter, stok­ing con­cerns about con­sumer in­debt­ed­ness and over­shad­ow­ing prof­its that topped an­a­lysts’ es­ti­mates.

Wall Street has ramped up credit card lend­ing amid a slump in bond trad­ing, but the higher pro­vi­sions for bad debts fu­elled wor­ries about prof­itabil­ity of an al­ready costly busi­ness and sent shares in both banks lower.

Pro­vi­sions for credit losses across JPMor­gan rose 14 per cent, with the bank at­tribut­ing much of that to its credit card busi­ness, and 15 per cent at Citi in the quar­ter, com­pared with a year ago.

Both banks said on Thurs­day the in­creases were a nor­mal part of the credit cy­cle and did not point to ev­i­dence of con­sumers un­der stress, but this did not re­as­sure an­a­lysts. Said Bar­clays an­a­lyst Ja­son Gold­berg: “In­vestors are tak­ing ex­cep­tion to both com­pa­nies adding to their credit card loan re­serves.”

US banks have spent hun­dreds of mil­lions at­tract­ing con­sumers to credit cards with of­fers.

An­a­lysts on Citi’s earn­ings call ques­tioned when the in­cen­tives would end and in­vestors would start to see a re­turn.

Re­fer­ring to pro­mo­tional of­fers that can go up to 21 months, chief fi­nan­cial of­fi­cer John Ger­sprach told an­a­lysts: “Don’t freak out. It doesn’t mean it’s go­ing to be 21 months be­fore we see growth in any­thing.”

At Citi, cost cut­ting, a unit sale and a gain in in­vest­ment bank­ing fees helped the fourth-big­gest US bank beat Wall Street ex­pec­ta­tions for both profit and rev­enue.

JPMor­gan, the largest US bank by as­sets, also topped ex­pec­ta­tions as loan growth and higher in­ter­est rates more than off­set a 27 per cent slide in bond trad­ing.

For the past seven years, Wall Street banks have been grap­pling with low bond mar­ket volatil­ity and new reg­u­la­tions that have re­stricted cer­tain ac­tiv­i­ties and made trad­ing more ex­pen­sive. Len­ders are look­ing to growth in loans to off­set the trad­ing slump.

Hopes are fad­ing that US Pres­i­dent Don­ald Trump will be able to stim­u­late bond trad­ing ac­tiv­ity and boost de­mand for loans through a yet-to-ma­te­ri­alise tax over­haul and loos­en­ing in fi­nan­cial reg­u­la­tions.

JPMor­gan fared worse last quar­ter than ri­val Citi, which re­ported a 16 per cent de­cline in bond trad­ing.

JPMor­gan’s mar­ket rev­enue is likely to drop again in the fourth quar­ter be­cause the year-ago pe­riod was strong, chief fi­nan­cial of­fi­cer Mar­i­anne Lake said in a con­fer­ence call with an­a­lysts.

Ex­ec­u­tives main­tained ear­lier guid­ance for full-year net in­ter­est in­come, ex­penses, char­ge­offs and loan growth, in­di­cat­ing that they ex­pect JPMor­gan’s other busi­nesses to con­tinue to off­set cap­i­tal mar­kets pain.

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