JPMorgan Q4 Profits Dip on $2.2B Apple Card Charge

Fourth-quarter profits for JPMorgan Chase fell, missing estimates made by analysts. The dip is largely due to a $2.2 billion provision for a credit loss that was part of the Apple Card deal, American Banker reports. 

JPMorgan Chase announced last week that it would be replacing Goldman Sachs as the issuer of the Apple Card and taking over the card’s $20 billion portfolio. The takeover will take about two years to complete.

The Apple Card portfolio is about 8% of JPMorgan Chase’s total credit card loans, American Banker reports. 

Even prior to this takeover, JPMorgan Chase was the nation’s largest credit card issuer by purchase volume, CNBC reports. So a big issuer just got bigger, and it gained an association with the Apple brand.

“Apple is an iconic brand recognized globally for its innovation, design excellence, and commitment to delivering exceptional customer experiences,” said Allison Beer, Chase’s chief executive officer of Card & Connected Commerce in a press release.

“We share a commitment to supporting consumer financial health, and we’re proud to deepen our relationship by welcoming them as the newest partner in our industry-leading co-brand credit card program.”

Despite the recent dip in profits, analysts see the potential for growth for JPMorgan Chase from the Apple Card takeover.

“Chase is then going to be acquiring 12 million new customers,” said Ben Danner, a Senior Research Analyst supporting credit and commercial practices at Javelin Strategy & Research.

“And with those new customers are new opportunities for cross-selling them into new products, such as deposit loan services, your kind of traditional bank services, as well as Chase’s plethora of card products,” said Danner.

Changes to underwriting as well as credit limit decreases to control for risk should be expected, said Danner.

“So this is an opportunity for Chase to acquire a whole new set of subprime borrowers. And that’s not traditional for them,” Danner said. “However, Chase does have some products and services geared for that community.”  

For example, JPMorgan Chase offers the Chase Freedom Rise Card to people with little credit. 

“It allows an immigrant or a student or somebody with a thin file to get extra points in underwriting because they have a Chase checking account. And it’s a very clever way to do it,” said Brian Riley, Director of Credit Advisory Services at Javelin Strategy & Research. 

The infrastructure with JPMorgan Chase will be able to handle and manage the infusion of Apple Card customers.

“They are strong in the way they fortify their balance sheet, and they’re also strong in the way that they protect it. And they have several operations centers in the US that have the adequate girth and the technology behind it to support it,” Riley advises.

JPMorgan Chase will have an even bigger slice of the pie of the credit card industry following the takeover of Apple Card. 

The move also illustrates how tech and banking are merging as JPMorgan Chase gains digitally savvy Apple Card customers into its credit card portfolio. 

In addition, the Apple Card and JPMorgan Chase deal may push other issuers to pursue new partnerships of their own to compete. 

And finally, Goldman Sachs, the original issuer of the Apple Card, will leave the consumer banking business once the Apple Card takeover is completed in two years.

The financial impact of the Apple Card takeover caused JPMorgan Chase’s profits to dip in the fourth quarter. But profits are forecast for the bank based on the cross-selling opportunities with Apple Card’s 12 million customers.

One impact of the Apple Card takeover is that other credit card issuers may decide to pursue new partnerships to compete with JPMorgan Chase.