Major US banks, including JPMorgan Chase, Bank of America, and Wells Fargo, are taking steps to brace for potential financial fallout from increasing economic uncertainty. These banks are increasing their capital reserves to cover potential losses from credit card and loan insolvencies, setting aside billions of dollars in emergency provisions [535373e1].
This move comes as US banks continue to face challenges in the current economic climate. As previously reported, major banks like Citizens Financial, US Bancorp, First Horizon, and Synchrony Financial have reported higher deposit costs compared to the previous year, which have squeezed their second-quarter profits. The Federal Reserve's quantitative tightening and the pressure on banks from the benchmark interest rate have contributed to the high deposit costs [4447cfd3] [0f6fb64c]. Despite these challenges, investment banking business was lucrative for large banks like JPMorgan Chase, Citigroup, and Bank of America in the second quarter. Their investment banking units experienced a boost in profits due to a flurry of bond sales. The KBW regional banking index reached its highest level in over a year [4447cfd3] [ce9f0978] [0f6fb64c].
Banks are also facing scrutiny over potential weaknesses in their commercial real estate loan portfolios. Recent incidents at New York Community Bancorp and First Foundation have highlighted default risks. Additionally, the Federal Reserve's stress test revealed potential challenges in credit card loans and corporate credit portfolios. On a positive note, Washington Federal reported better-than-expected third-quarter earnings after selling multi-family loans without any loss [4447cfd3] [ce9f0978] [0f6fb64c].
In addition to these challenges, major US banks, including Bank of America, Citigroup, and Goldman Sachs, have reported combined losses of $4.1 billion due to rising unpaid debts. Citigroup faced $2.28 billion in net credit losses for Q2, with CEO Jane Fraser noting a slowdown in consumer spending. Bank of America reported net charge-offs of $1.5 billion for Q2, a 66% increase from the previous year. Goldman Sachs disclosed $359 million in net charge-offs. JPMorgan Chase reported $2.2 billion in losses, and Wells Fargo reported $1.3 billion in charge-offs. The Federal Reserve Bank of New York warned about escalating US household debt, which reached $17.69 trillion in Q1, a $640 billion increase from the previous year [51a97b1f].
The increasing capital reserves by JPMorgan Chase, Bank of America, and Wells Fargo indicate their preparedness for potential financial fallout amid the current economic uncertainty. These banks are taking proactive measures to protect themselves against credit card and loan insolvencies, which could result in significant losses. This move reflects the cautious approach taken by these banks to mitigate risks and ensure their financial stability [535373e1].
The Financial Times reports that US banks may or may not be preparing for a hard landing. The article discusses the potential impact of the Current Expected Credit Loss (CECL) accounting standard on US banks. CECL requires banks to estimate and set aside provisions for expected credit losses in advance. Some banks have already started preparing for CECL, while others have not. JPMorgan Chase & Co is mentioned in the article. The article also mentions a reshuffle at JPMorgan that erodes the power base of Jamie Dimon's top deputy. The SEC is investigating Wall Street banks over lost interest payments. US regulators are seeking to limit asset managers' influence over big banks. JPMorgan is promoting an in-house chatbot as an AI-based research analyst [fa3eb27e].
The financial struggles in the banking sector and the increasing capital reserves set aside by major US banks highlight the broader economic challenges and the weakening consumer base. Smaller lenders are facing even greater challenges without the resources to cushion against financial shocks. Car repossessions have surged by 23% as more Americans fall behind on car payments. Commercial real estate devaluation and high vacancy rates are also impacting banks' commercial loan portfolios. Commenters express concerns about a debt-based economy and the potential long-term impacts on the US economy. These developments underscore the disconnect between official narratives and the reality faced by many Americans [9e398fcc] [4447cfd3] [ce9f0978] [51a97b1f].