While JPM was quick to provide all the favorable data in its earnings presentation (and not so favorable when it comes to the unexpectedly sharp, 27% drop in its fixed income revenues) one thing was conspicuously missing: the slide on "Mortgage Banking And Card Services" which has traditionally been part of the bank's earnings presentation and was certainly featured prominently in Q1, if dropped last quarter.
Of course, it is possible that JPM simply forgot to include it, or perhaps it did not want to bring attention to a troubling trend: the concerning increase in net credit card charge-offs, which earlier in the year rose to just shy of $1 billion, and which prompted JPM to report an unexpected increase in credit costs (driven also by JPM's write-down in its student loan portfolio).
So we decided to recreate the chart using data JPM disclosed in its earnings supplement, and which may explain why JPM "forgot" to add that particular slide. It shows that after rising to the highest level since March 2013 last quarter, JPM's net credit card chargeoffs remained over $1 billion as of Sept 30, at $1.019BN to be precise, and just shy of the highest level going back to March 2013, suggesting that contrary to Jamie Dimon's commentary, the US consumer is not doing all that hot after all.
As a reminder, in his Q3 commentary while Jamie Dimon was quick to note that "the U.S. consumer remains healthy with solid wage growth", although there was little discussion of this troubling credit card trend, with the only commentary on the rising charge offs in the earnings report the following, which did observe a notable increase in loan loss reserve build for the Card segment:
The provision for credit losses was $1.5 billion, up from $1.3 billion in the prior year. The increase reflected a net reserve build of $303 million in the Consumer portfolio, driven by Card, and higher net charge-offs of $148 million, partially offset by a net reserve release of $116 million in the Wholesale portfolio, primarily driven by Energy and Commercial Real Estate.
Why is this notable? Because as we discussed over the summer, using the S&P/Experian Bandcard Default Index, "Credit Card defaults has surged the most since the financial crisis" and looking at the JPM numbers, while there has been a modest improvement, the trend underscores that the key driver of the US economy is starting to get increasingly more stretched.
Is it time to start worrying about the spending capacity of the US consumer?