Our children, when they were little, were big fans of Sandra Boynton’s books including The Going To Bed Book, Moo Baa La La La, and Opposites, which was the first book our son learned to read. Their parents were big fans too, as one of my fondest memories of my son’s early years is his reading Opposites to my wife and me again and again at bedtime (and it is a memory I come back to often now that he’s 12 going on 25 and wants very little to do with us most of the time!).
And in the spirit of Opposites – which opens “Big and small, short and tall,” we focus this week on a small number that we think is a big deal, and that is the net charge off ratio reported by JPMorgan Chase as part of its Q1 2022 earnings announcement last week. A net charge off ratio represents the percentage of loans outstanding during a particular period that a lender has determined won’t be paid back and should be written down to zero or charged off. The percentage is translatable into a dollar amount, and as you might expect, a low ratio or dollar amount is a lot better than a high ratio or dollar amount. And as you might also expect, during periods of economic expansion, the charge off ratio for most lenders drops, and during periods of economic contraction, the charge off ratio for most lenders rises.
Well, the ratio for JP Morgan Chase’s credit card business during Q1 was 1.37%, the third consecutive quarter it came in sub 1.5%, a dynamic that speaks to a US consumer that seems quite capable of paying their bills. To put the 1.37% ratio in perspective, The Wall Street Journal reported the bank’s CEO Jamie Dimon said he wouldn’t have expected charge offs to ever fall below 2.5%. And we think that 1.37% is a big deal as calls for a coming US recession grow louder on Wall Street, with weaker consumer sentiment (see chart) cited as a harbinger of weaker consumer activity to come. We are not disputing the drop in sentiment. That said, sentiment has been moving lower for a year. We still see the consumer as a meaningful pillar of support for the economy as we move through 2022.
The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 0634-BCI-4/18/2022