(Reuters) – JPMorgan Chase & Co’s (JPM.N) profit plunged by more than two-thirds in the first quarter as the largest U.S. bank put aside nearly $7 billion in reserves to protect it from a wave of potential loan defaults in the months ahead.

FILE PHOTO: A J.P. Morgan logo is seen in New York City, U.S. January 10, 2017. REUTERS/Stephanie Keith

The results painted a grim picture at the start of a long, tough period for lenders, with Chief Executive Jamie Dimon saying the economy was facing a “fairly severe” recession because of the coronavirus crisis.

“If the economy gets worse we will bear additional cost,” Dimon said on a call with analysts. “But we do forecast that, (so) we know we can handle really adverse consequences.”

The bank set aside a total of $8.3 billion in the first quarter to cover loans that may go bust in the aftermath of the virtual shutdown of huge swathes of the United States and other economies.

JPMorgan’s chief financial officer, Jennifer Piepszak, however, cautioned that the current credit reserve build was based on a modest economic recovery in the latter half of the year and that it could go up “meaningfully” if the economy worsens.

“We haven’t actually seen the stress emerge yet,” Piepszak said. “What we took in the first quarter is our best estimate for future losses. It is our best estimate for losses that will occur through … this crisis.”

The reserves included $4.5 billion against potential consumer loan defaults as millions of Americans lose their jobs and struggle to make payments on anything from iPhones to cars to new microwaves.

A new accounting rule requires banks to take provisions now if a borrower may default at any point during the agreement, even if that is months or years away.

Revenue at three of its four main businesses were down, although trading proved to be a bright spot in an otherwise dismal quarter.

JPMorgan’s investment bank was hurt by a near-total halt in M&A activity and underwriting, with the exception of investment-grade debt.

JPMorgan’s shares were up nearly 1% in premarket trading.

Graphic – JPMorgan’s loan book over the years: here

Interactive graphic reut.rs/2K1oXbL on loans

EARNINGS SLUMP

JPMorgan’s results launched a week of financial earnings on Wall Street that are closely watched by investors and show how much central-bank policies are affecting income and how well banks are placed for the months to come.

The bank’s net interest income stayed flat at $14.5 billion as lower interest rates were offset by higher net interest income from its investment banking business. It forecast annual net interest income of $55.5 billion.

The bank’s net income fell to $2.87 billion, or 78 cents per share, in the quarter ended March 31, compared with $9.18 billion, or $2.65 per share, a year earlier.

Analysts on average had expected $1.84 per share, according to Refinitiv. It was not immediately clear if the reported numbers were comparable with estimates.

One month ago, analysts had estimated that JPMorgan would make $2.74 per share, according to Refinitiv data. The additional reserves, largely as a result of COVID-19, reduced results by $1.66 per share, JPMorgan said.

“While a couple of critical issues like future reserves & run rate revenues … will help shape the picture on what to do with JPM … at first look we think 1Q20 results will be good enough to keep JPM remain profitable,” Evercore ISI analyst Glenn Schorr wrote in a note to investors on Tuesday.

Wells Fargo also reported a plunge in first-quarter profit on Tuesday. Bank of America Corp (BAC.N), Citigroup Inc (C.N) and Goldman Sachs Group Inc (GS.N) will report results on Wednesday and Morgan Stanley (MS.N) on Thursday.

There have so far been more than 1.8 million reported cases of COVID-19, the deadly respiratory disease stemming from the virus, and 115,242 deaths, according to a Reuters tally.

Reporting by Anirban Sen in Bangalore and Elizabeth Dilts-Marshall and David Henry in New York; Editing by Saumyadeb Chakrabarty and Lauren Tara LaCapra

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