The economic shutdown the coronavirus has caused has already forced millions of Americans out of work and threatened the future of thousands of small businesses, and the country’s biggest banks are bracing for the fallout.
JPMorgan Chase and Wells Fargo — which on April 14 were the first two major banks to report earnings this quarter — set aside billions of dollars each for losses on loans to customers who may soon no longer have the means to repay them.
The chief executive of JPMorgan, Jamie Dimon, said the bank was preparing for “the likelihood of a fairly severe recession.”
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JPMorgan, the country’s largest bank, added $8.3 billion to its reserves to prepare for impending defaults — a $6.8 billion increase from the same quarter last year. Wells Fargo set aside $4 billion, which was an increase of $3.1 billion.
“The actual level of losses we incur will be driven by how long this period lasts and the level of support the government provides,” Wells Fargo’s Chief Executive Charles W Scharf said on a call to discuss the results with Wall Street analysts.
But the banks’ manoeuvres to steel themselves for losses reflect their calculations that the $2 trillion economic relief bill, which includes direct payments to low-earning Americans as well as $349 billion in forgivable loans to small businesses, will not be enough to stave off widespread financial instability for everyday Americans and their employers.
JPMorgan’s reserves, for example, are now close to the levels the bank felt it was necessary to hold in the immediate aftermath of the 2008 financial crisis, which brought about the Great Recession.
The banks’ preparations hit their profits hard in the last quarter.
JPMorgan’s net income fell to $2.9 billion from $8.5 billion for the last quarter of 2019 and $9.2 billion for the same period a year earlier — with the bank’s new reserves essentially the difference. Wells Fargo reported a steep drop in profit to $653 million from $5.9 billion during the same period in 2019.
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Despite overall increases in the major stock indexes on April 14, Wells Fargo shares were down by almost 4% and JPMorgan by 2.7% at the end of trading.
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