Jamie Dimon warns about cracks in the consumer
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JPMorgan Chase increased provisions for loan losses as CEO Jamie Dimon warned of "signs of softening" amid continued uncertainty related to tariffs and the labor market.
Why it matters: The nation's biggest bank is getting cautious even as its investment banking and trading desks continue to rip, hinting at cracks beneath what Dimon called a "resilient economy."
What they're saying: "We've had a benign credit environment for so long that I think you may see credit in other places deteriorate," Dimon said during the bank's third-quarter earnings call.
- "There continues to be a heightened degree of uncertainty stemming from complex geopolitical conditions, tariffs and trade uncertainty, elevated asset prices and the risk of sticky inflation."
By the numbers: JPMorgan set aside $3.4 billion for potential loan losses in the third quarter, up 10% from a year ago. Net charge-offs also rose 24% to $2.6 billion, driven by its credit card and wholesale lending businesses.
- The bank booked an $810 million reserve build, down 20% from last year, with most of the new cushion covering potential losses in credit cards.
- The firm also took a $567 million hit in its investment bank, including roughly $170 million tied to the bankruptcy of subprime auto lender Tricolor Holdings.
Zoom out: It's not just JPMorgan. Jefferies has faced questions about its exposure in lending to First Brands, an auto parts maker that has filed for bankruptcy.
- Jefferies said in a letter Sunday that any losses or expenses from its exposure to First Brands can be "readily absorbed."
- First Brands is being investigated by the Justice Department over alleged acounting irregularities, the Financial Times and other outlets reported.
Between the lines: In response to an analyst's question about Tricolor, Dimon said "when you see one cockroach, there are probably more. And so everyone should be forewarned on this one."
- The response perhaps spooked investors after an otherwise stellar quarter.
- Dimon also warned about broader private credit risks, adding, "I expect it to be a little bit worse than other people expect it to be, because we don't know all the underwriting standards that all these people did."
Threat level: Part of the challenge is a feature of private credit: opacity.
- "There are a lot of suspicions that what's in those various private credit conduits is of questionable credit quality, and now, all of a sudden, we're starting to see that emerge as a concern," according to Bob Elliott, CEO of Unlimited Funds.
- Banks have already decreased lending, and if losses encourage private credit providers to follow suit, then that could diminish access to credit, potentially hindering broader economic growth.
Yes, but: Executives across the rest of the major banks that have reported earnings so far say credit activity remains strong.
The bottom line: As the "cockroach" warning suggests, broader credit stress could be on the horizon, as Wall Street watches for any signs of cracks.
