The Finance 202: Banks brace for loan defaults, predicting sharper economic pain ahead
Some of the biggest U.S. banks are putting their money where their fear is. JPMorgan Chase, Citigroup and Wells Fargo are bracing for a deteriorating economic outlook by adding a combined $28 billion to their reserves, the banking giants announced in second-quarter earnings calls Tuesday.
The moves are aimed at bulking up defenses against consumer and corporate loan defaults. The firms are planning for the possibility that those credit losses pile up in the months ahead if the economy continues to be rocked by pandemic shutdowns and emergency relief from Washington dries up.
“The visibility on what we’re dealing with is very, very low, because we’re not seeing right now what you would typically expect to see, given a recession,” Jennifer Piepszak, the chief financial officer of JPMorgan Chase, told investors on the bank’s earnings call. “May and June will prove to be the easy bumps in terms of its recovery. And now we’re really hitting the moment of truth, I think, in the months ahead.”
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