Biggest U.S. banks quintuple loan loss provisions – Quartz
US banking giants are bracing for a potential bad debt tsunami.
The five largest U.S. lenders hid $ 24 billion in loan loss provisions in the first quarter, nearly five times more than in the previous period, according to FactSet data. Banks are bracing for a wave of downgraded loans and credit losses as businesses endure weeks of shutdowns to contain the coronavirus pandemic. JPMorgan economists predict that US unemployment will climb to 20% next month, a level not seen since the Great Depression, before the economy begins to recover in the second half of the year.
The drastic increase in loss provisions is eating into profits and is a sign of the coming economic crisis. Bank of America profits fell 45% as the Charlotte, North Carolina-based lender set aside a total of $ 4.76 billion for credit losses, from $ 941 million in the previous quarter.
JPMorgan spent $ 6.8 billion more than the previous period, including $ 4.4 billion on consumer debt, such as credit cards. In a conference call with analysts, CEO Jamie Dimon said it was a “mistake” to try to model and forecast losses during such an unprecedented event, when people lose their jobs so quickly while billions of dollars in government assistance are also intensifying, with some workers seeing their incomes increase during unemployment.
Dimon, who returned to work a few weeks ago after emergency heart surgery, said credit card defaults have so far been relatively inconspicuous, but will show up more over the next three years. next months. JPMorgan could set aside even more profit next quarter to cover losses if the situation deteriorates.
For banks, the severity of the losses will greatly depend on the ability of government programs to save small businesses threatened with bankruptcy and get people back into the workforce. “The key, of course, is being able to get people back to work,” said JPMorgan CFO Jennifer Piepszak.