From Normalization to Nuance: What JPM Investor Day and 10-Qs Reveal About Credit in 2025

In a year where JPMorgan's CEO Jamie Dimon warns that the risk of stagflation is 'two times' what the market perceives, understanding the nuances of credit risk becomes paramount.

Combined with fresh SEC 10-Q disclosures across the large-cap banking universe, a nuanced picture emerges—one where credit discipline meets growth ambition, and macro caution frames even the most bullish forward guidance. Here’s what credit executives should know:

JPMorgan’s Credit Philosophy: Growth with a Seatbelt

Jamie Dimon's perspective on the macroeconomic horizon remains characteristically candid, a refreshing antidote to market complacency. While the market rebounded after the April 2 tariff announcement, Dimon emphasized that “geopolitical risk is currently understated” and warned of too much complacency around tariffs. He noted, “The probability of inflation going up and stagflation is a little bit higher than other people think.” His apprehension extends to a higher probability of inflation going up and stagflation than others might anticipate. Dimon told Bloomberg News that he couldn't rule out that the U.S. economy will fall into stagflation as the country faces huge risks from geopolitics, deficits and price pressures.

Jamie Dimon highlighted the sheer number of variables corporate clients now must consider—tariffs, taxes, rates, currencies—saying, “Almost every input variable for capital budgeting has yet to be determined.”

According to JPM's observations, corporate clients initially entered the year bullish but "tapped the brakes" upon seeing concerning signs and a potential economic slowdown. Following the April events, they put plans on hold, awaiting clarity on a myriad of input variables for capital budgeting—tariffs, interest rates, discount rates, currencies, and taxes. This cautious corporate behavior directly impacts loan demand and credit quality, necessitating vigilance from risk managers.

This view is a critical backdrop for JPM's internal risk management, emphasizing the need for robust stress testing and proactive credit strategies. This framing sets the tone for JPM’s risk posture.

JPMorgan continues to play offense, but with the defensive lines well fortified. CFO Jeremy Barnum reaffirmed ~$90B in 2025 NII (ex-Markets), with room for upside. However, the real story lies in the firm’s CECL modeling. To reflect elevated uncertainty, JPM shifted its scenario weighting to be “even more weighted to the downside,” resulting in a 1Q25 ACL that embedded a 5.8% weighted average peak unemployment rate. This was well above the Fed’s April figure of 4.2% and even JPM's own economist forecast of 4.3% for 4Q24.

Notably, the firm simulated a jump in the unemployment rate from 4.4% to 6.5%, requiring only about a $3B reserve build—an 11% increase. This suggests that JPM’s provisioning is structurally robust and skewed toward conservatism.

This slide illustrates JPM's detailed CECL scenario analysis, including their weighted average peak unemployment rate and the illustrative reserve build under a moderate recession scenario. It provides tangible data points on how a major bank views and manages potential credit losses under stress Source: JPM Investor Day

Credit on the Horizon: Normalization and Nuance

JPM's credit narrative acknowledges recent increases in charge-offs but frames them mainly as a "normalization" on the consumer side. This isn't necessarily a sign of broad deterioration but rather a return from exceptionally low levels. However, wholesale net charge-offs, which have been "extremely low since the Great Financial Crisis," are expected to have an "upward bias looking out." This distinction between consumer and wholesale credit trends is crucial for risk executives, requiring tailored strategies for each segment.

• Credit Card NCOs rose 19bps in 1Q25, the only major category to do so. JPM forecasts 2025 NCOs at 3.6% and a range of 3.6–3.9% for 2026.

• CRE remains lumpy. JPM noted that office exposure is likely driving volatility. While 1Q saw CRE NCOs fall to 0.18%, CRE delinquencies rose for the 10th straight quarter to their highest level in 10 years.

• C&I delinquencies have been “stable to higher” for six straight quarters, reaching their highest level since 2017. Inflation and elevated rates are the likely culprits.

  
  

  JPM noted that tariffs' impact on their wholesale C&I portfolio would be industry—and company-specific. Companies with lower margins might be forced to either absorb costs or pass on price increases, potentially eroding already thin margins or leading to market share loss.

  
  

  The most vivid demonstration of JPM’s vigilance was the C&I bubble chart from Investor Day. It showed industry exposure by margin and expected tariff impact, with bubbles sized by reserve levels. Thin-margin sectors like textiles and autos could face the sharpest margin compression. This forward-looking approach to reserving reflects JPM’s proactive stance.

The bubble chart on this slide visually conveys the complex interplay of pre-tariff operating margins, potential tariff impact, and current reserves across different C&I industries Source: JPM Investor Day

The key takeaway: wholesale credit performance is still benign—but has an “upward bias looking out,” as JPM noted.

Additional SEC 10-Q Highlights: What Else Matters for Credit Executives

Beyond the headline figures, the 1Q25 10-Q filings reveal several critical signals for credit risk professionals:

• Criticized Asset Stability: Criticized loans were generally stable, despite macro noise. Increases at BAC and HBAN were offset by declines at GS and WFC, pointing to divergent risk positioning rather than systemic stress.

• Office CRE Nuance: While office remains pressured, most banks have built reserves to reflect those risks. ACLs vary widely—from 4% at ZION/MTB to 11%+ at PNC, HBAN, and USB—indicating different confidence levels in underwriting resilience.

• Allowance Sensitivity to Downside Scenarios: If the downside scenario were weighted 100%, the median bank’s ACL would rise 29%. This illustrates how CECL flexibility allows banks to bake in judgment-based cushions.

• Deposit Behavior Insight: Average deposits declined 0.8%, but period-end balances rose 1.7%—signaling caution and liquidity hoarding by commercial clients. NIBD now stands at 23.1% of balances—well below pre-pandemic levels.

• Provisioning Style Matters: Some banks, like JPM, MS, and HBAN, are building reserves proactively. Others are holding steady. These choices reflect each institution’s view of the economic path ahead and their sensitivity to forecast error.

  
  

Conclusion: Plan for the Unseen, Position for the Inevitable

The tone from JPMorgan’s Investor Day wasn’t cautionary—it was calculated. While headlines may calm, Dimon’s message was clear: risks are underpriced, credit normalization is underway, and banks must plan for volatility, not stability.

Credit executives should prioritize dynamic stress testing, closely monitor sector-specific risks, and leverage AI-driven analytics to navigate the evolving credit environment.

Above all, JPM’s stance affirms that resiliency is built before the storm, not during it.