US Banks Set Billions As A Buffer Against Bad Debt

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Three major U.S. banks have set aside an additional $ 23 billion (2.47 trillion yen) as a bad debt safety net, underscoring the fragility of the U.S. economy due to the coronavirus pandemic, the companies said on Tuesday.

Even amid gradual signs of a rebound as businesses reopen, measures to contain COVID-19 have caused a devastating blow and millions of jobs lost in the world’s largest economy.

This has raised concerns that businesses will struggle to pay off their debts and that households will not be able to pay off their mortgages, car loans and credit cards.

The three banks took a collective $ 5 billion bad debt hit in the last quarter, and although executives have said they hope it will mark the worst hit to credit problems, they have acknowledged that The health of the loans depends on the evolution of the COVID-19 situation.

Virus cases and death toll have worsened in the United States since the end of the quarter on June 30, leading officials in California, Texas and other states to reactivate restrictions after the reopening of their savings.

“The pandemic has a grip on the economy and it does not look likely to ease until vaccines are widely available,” Citigroup chief executive Michael Corbat said.

Corbat said consumer spending in states with poor COVID-19 trends had declined somewhat in recent weeks, but not as much as during the “darkest days” earlier in the spring.

JPMorgan Chase has bolstered its reserves with an additional $ 8.9 billion, more than the safety net in the first quarter, and now expects a more “prolonged” economic recovery, said CFO Jennifer Piepszak.

JPMorgan Managing Director Jamie Dimon said the bank was “prepared for all eventualities because our fortress record allows us to remain a port in the storm.”

At the same time, Citigroup added $ 5.6 billion in reserves also due to the “worsening” outlook, as well as deteriorations in loan quality due to the virus, the bank said in a statement.

And Wells Fargo put $ 8.4 billion in additional reserves in the second quarter, underscoring the “unprecedented” nature of the pandemic.

Increases in reserves led to a sharp decline in profits at JPMorgan and Citigroup, although banks benefited from improvements in some divisions, such as trading.

However, Wells Fargo reported a loss of $ 2.4 billion, up from $ 6.2 billion in profits during the same period the previous year. The bank, which unlike the others does not have a large business division, said it was cutting its dividend to 10 cents per share from 51 cents.

Wells Fargo chief executive Charlie Scharf said the bank was “extremely disappointed” with the decision, but “our view of the length and severity of the economic downturn has deteriorated significantly from the assumptions used last. trimester”.

At JPMorgan, net income fell 51% to $ 4.7 billion, translating into better-than-expected earnings per share. Revenue jumped 15% to $ 33.8 billion, its highest level in a quarter.

While the bank reported a loss in personal and business banking, it saw a sharp increase in profits in its merchant and investment banking division, as commercial income soared against a backdrop volatility in financial markets.

Conditions in May and June were eased by an influx of public funding, but whether the bank expects more stimulus to come, that is not certain, Piepszak told a conference. telephone with journalists. And the bank expects double-digit U.S. unemployment to persist through mid-2021.

At Citigroup, net profit fell 73% to $ 1.3 billion, while revenues rose 5% to $ 19.8 billion, boosted by higher revenues for its institutional client group which has offset a decline in personal banking services.

Wells Fargo said its exposure included loans related to problem industries such as oil and gas, real estate and recreation.

JPMorgan shares rose 0.36% to $ 98.21, while Citigroup fell 3.9% to $ 50.15 and Wells Fargo fell 4.6% to $ 24.25.

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