US Banks Are Preparing For A Wave Of Loan Defaults Due To Coronavirus
Major US banks have made it clear that the worst period of the economic crisis caused by the coronavirus pandemic is yet to come, reserving tens of billions of dollars to cover possible loan losses.
JPMorgan Chase & Co., Citigroup Inc., and Wells Fargo & Co., which opened the corporate reporting season in the United States on Tuesday, July 14, sent more than $28 billion to reserves in the second quarter, which negatively affected their profits. Banks fear that consumers and businesses will not be able to repay their loans against the background of COVID-19.
The significant increase in provisions for loan losses compared to the previous three months reflects changes in lenders' assumptions about the duration and severity of the effects of the pandemic on the economy, the Wall Street Journal notes.
JPMorgan, the largest us bank by assets, said it had created additional reserves in case the unemployment rate remains high next year, and GDP recovery is slower than the Bank's economists expected three months ago. "This is not an ordinary recession," said JPMorgan Chief Executive Jamie Dimon. "You will see the recessionary part of this in the future."