JPMorgan’s Jamie Dimon Tells Analysts Reserve Releases Could Come - Barron's

Jamie Dimon, chief executive officer of JPMorgan Chase.

Jaon Alden/Bloomberg

Improving economic conditions could put JPMorgan Chase on the path to release reserves it built up during the pandemic.

Analysts at Keefe, Bruyette & Woods recently had a wide-ranging meeting with JPMorgan (ticker: JPM) chief executive Jamie Dimon where they discussed the bank’s credit and economic outlook as well as its recent moves to bring employees back to the office.

While uncertainty continues to loom over the economy, JPMorgan has seen some encouraging data when it comes to credit. Consumers who asked for deferrals on their credit cards continued to pay overall, writes Brian Kleinhanzl, managing director at KBW. On the mortgage side, many borrowers continue to make payments despite being granted a deferral.

But the tricky nature of this recession—as well as new accounting rules for banks—has made it difficult for investors to get their hands around credit issues facing banks. Not to mention, the unprecedented levels of monetary and fiscal stimulus that have so far kept credit losses low.

The sector aggressively built its reserves in recent quarters in accordance with the Current Expected Credit Losses (CECL) framework which requires banks to book projected losses upfront rather than over the life of the loan. Those losses may show up in future quarters, but reserve releases could also be coming as macroeconomic conditions have recently come in better than what the bank initially forecast.

“If projections do not change and come in as expected, Jamie noted it would not be unreasonable to expect reserve releases in the fourth quarter,” Kleinhanzl wrote.

Investors will probably not want to assume releases this quarter, however, given the continued uncertainty around the pandemic’s impact on the economy. Barron’s recently noted that some banks, including JPMorgan, could be in a position to release reserves in 2021 and 2022.

Beyond credit, Dimon also discussed the pluses and minuses of working from home. Necessity forced decision-making and digital adoption to quicken, both of which are largely positive. But productivity has started to wane—particularly on Mondays and Fridays, Kleinhanzl writes. Younger employees may also be disadvantaged by not being in the office as it’s tough to mimic the spontaneous learning opportunities that present themselves in the office when working remote.

JPMorgan shares gained 1.4% in Monday’s trading, outpacing the 1.3% jump in the S&P 500.

Write to Carleton English at carleton.english@dowjones.com

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