JPMorgan Chase will boost its credit reserves again in the second quarter to approximately match the last quarter’s $7 billion in anticipation of more potential defaults.

J.P. Morgan's move to boost credit reserves by a «roughly equivalent» amount as the last quarter was in part due to a new accounting rule – CECL – requiring lenders to take provisions early for loans that may default on at any given moment. 

«Since current expected credit loss (CECL) is very forward-looking, I think that banks will have to put up a lot more credit reserves this quarter,» said J.P. Morgan Jamie Dimon, according to a «Reuters» report, during a recent virtual conference. «We would have a substantial increase in credit reserves in the second quarter.» 

First-quarter profits for the American bank plunged by around two-thirds due to the $7 billion placed in reserve in preparation of potential bad loans.

Turning the Corner

Despite preparations for greater default risk, Dimon noted strong signs of improvement from the bank’s top line including debit cards, which are now back to levels in line with that of 2019, and trading revenue, with volumes similar to the record-high figures posted in March and April. 

According to Dimon, economists expect U.S. unemployment to reach 18 percent by mid-year before falling closer to 10 percent in the second half. In line with these expectations, J.P. Morgan’s credit reserves are front-loaded and will likely taper off in the third and fourth quarters.