Chase Auto’s originations plummeted early in the second quarter to levels not seen since the Great Recession before rallying to historic highs in June, Jennifer Piepszak, chief financial officer at JP Morgan Chase, said during the company’s July 14 earnings call.
Total originations clocked in at $7.7 billion, a 9.4% year-over-year decline, which the bank attributes to the loss of its private label financing partnership with Mazda Motor of America, Piepszak said. That partnership of nearly 10 years ended March 31.
In fact, June originations accounted for $3.7 billion of the quarter’s total originations, the highest in the bank’s history for a single month, largely driven by pent-up demand in states that are re-opening after coronavirus lockdowns, according to the earnings presentation.
Outstanding loans and leases fell 3.5% YoY to $59.3 billion from $61.5 billion. Similarly, 30-plus day delinquencies dropped 35 basis points to 0.54% of the total portfolio compared with last quarter, and net charge-offs fell 2 bps to 0.3% of outstandings in the same reporting period. As of June 30, $12.3 billion in outstanding auto principle balances were in deferral, and the bank noted in its earnings supplement that “loans that are performing according to their modified terms are generally not considered delinquent.”
Looking forward, neither Piepszak nor Jamie Dimon, chief executive at JP Morgan, believe the deferral rate is indicative of future trends.
Still, Chase Auto increased its allowance for credit losses again this quarter to approximately $1 billion, a 42% increase compared with last quarter, and a 124.5% YoY increase. By comparison, allowances for credit losses on the bank’s auto portfolio for the last three quarters of 2019 clocked in at $465 million.
As banks continue to increase their allowances for credit losses, there is concern that allowances will be unable to stack up against credit losses experienced during the credit crisis, according to a report issued by S&P Global yesterday.
However, JP Morgan Chase’s most recent $10.5 billion increase in credit loss provisions on managed assets this quarter “lifts [the bank’s] ratio of reserves to projected stress test losses to nearly 50%, helping to bring it closer to potential full-cycle credit costs,” S&P noted in the report.
Shares of JP Morgan Chase [NYSE: JPM] were trading up 1.09% to $99.27 as of 2:25 pm ET. The New York-based bank has a market capitalization of 301.9 billion.
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