Bad debt is $ 100 billion in the country’s largest banks

The potential cost of bad loans for Coronavirus for the country’s largest banks has reached the figure of 12.

The country’s five largest lenders – Bank of America, Citigroup, JPMorgan Chase, US Bancorp and Wells Fargo – say that financial stress caused by the epidemic could cause defaulters to default on a total of $ 104 billion in debt. The disclosures were made as part of quarterly earnings announcements of the biggest banks this week.

Largely all five banks lost profits, as they had to set aside money to cover sour loans. Bank of america It was the last bank to report earnings for the second quarter. Bank of America said on Thursday that pre-tax profits had fallen by nearly 60%. The bank added $ 5 billion to its provision for bad loans, which has more than doubled to $ 20 billion from last year’s $ 10 billion.

This is the first time the potential loan deficit has surpassed $ 100 billion for the five largest banks since the end of 2010, and is another sign of the country’s growing economic troubles.

“It’s big,” said Octavio Marenzi, OpMass’s financial industry advisor. “These banks are increasing reserves as before.”

Banks always assume that some percentage of their loans will go unpaid and then separate money will be earmarked to cover those losses. But in the last six months, the expectation of loans in the largest banks has come down.

For example, JP Morgan Chase is predicting that the bank may have to cover $ 32.1 billion in bad debts. It was forecasting a bank of $ 13.2 billion about a year ago.

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Predictions of heavy losses suggest that many consumers will experience significant financial hardship as a result of the coronovirus slowdown, even though many banks have allowed customers To temporarily delay many loan payments.

For example, JPMorgan’s loans have decreased by about $ 18 billion, or about 55% have come from the credit card segment.

Matt-Anderson, an analyst at debt-data firm Trap, said the reason for the large jump in expected debt losses was high unemployment rates and weak economic activity. And he predicted that the debt deficit could increase.

“To deal with the coronovirus slowdown may eventually require a provision for greater losses,” Anderson wrote in a note to clients on Friday.

The good news is that the expected loan deficit is still lower than in 2010, when the five largest banks had bad lending provisions near $ 150 billion. They are still a fraction of the bank’s overall lending divisions of approximately $ 4 trillion.

Marenzi suspects that banks’ loan loss forecasts are off, given how different the current coronovirus recession is compared to the previous recession. Banks predicted loan losses based on the unemployment rate, Marenzi said. But the unemployment rate, which was shot down suddenly, is boosted by the fact that the government is offering more unemployment insurance to a wider segment of the population than in the previous recession. Stimulus checks can also prevent people from defaulting.

“My guess is that they will end as the numbers are higher,” Marenzi said. “[But] If the banks are right, this recession will be very bad for individuals. ”