JPMorgan Chase & Co. returned to building credit reserves in the first quarter, reflecting higher chances for a recession and exposures to Russia.
The bank increased its total credit allowance by $902 million in the period to $19.59 billion, ending a long streak of releases that followed enormous boosts to allowances when the pandemic first emerged.
Net charge-offs remained low at $582 million in the quarter, up 5.8% sequentially and down 44.9% from the year prior. The bank's provision expense of $1.46 billion was substantially ahead of the consensus forecast for $755 million.
CFO Jeremy Barnum said about one-third of the reserve build reflected "name-specific markdowns associated with Russia," and two-thirds reflected a higher probability of an economic downturn under current expected credit loss accounting.
The bank moved from "low to slightly less low odds of a sort of [Federal Reserve]-induced style recession in our scenario analysis," he said, referring to worries that interest rate hikes by the central bank to combat inflation might trigger a downturn.
"Actual charge-off performance remains exceptionally low. So there's no doubt that right now, consumer credit health is very strong," he added.
Chairman and CEO Jamie Dimon said the underlying economy remains "very strong" but that tighter monetary policy and shockwaves from the war in Ukraine are two "very powerful" countervailing forces. "These things are going to collide at one point, probably sometime next year. And no one actually knows what's going to turn out," he said. "So I'm not predicting a recession, but is it possible? Absolutely."
The bank said the net reserve build comprised about $127 million for the consumer business and $776 million in the wholesale business, including $426 million in the corporate and investment bank.
Russia exposure also contributed to $524 million of pretax losses for "credit adjustments," reflecting spread widening and derivative counterparty risk. Barnum said about $120 million was specifically tied to activity in the nickel market, where severe price volatility led to heavy margin calls on clients.
The bank's trading revenue in the quarter, which does not include the credit adjustments, was down 3% from the year prior to $8.8 billion, better than the 10% decline the bank said it had been tracking before it stopped updating guidance because of the market turbulence.
In an April 4 letter to shareholders, Dimon said the bank might "lose about $1 billion over time" because of Russia. After items recognized in the first quarter, the figure might now be about $600 million, Barnum said.
"And whether or not we actually lose that money is very much a function of some name-specific credit outcomes," Barnum said. "There are states in the world where we wouldn't lose any. And some states of the world where we might lose a bit more, although I think we believe that's pretty unlikely."
Volatile markets and counterparty risk also helped contribute to a 7.0% increase in the bank's standardized risk-weighted assets in the first quarter to $1.753 trillion, and a drop in its standardized common equity Tier 1 ratio from 13.1% to 11.9%.
The bank said it repurchased $1.7 billion of stock in the first quarter and that its board authorized a new repurchase program of $30 billion.