America’s biggest banks have set aside billions of dollars to cover potentially bad loans as the U.S. economy struggles with the COVID-19 pandemic.
With tens of millions of Americans out of work and many businesses shut down or operating below capacity, three top banks have set aside nearly $30 billion U.S. in the second quarter to cover loans that could turn bad in the coming months.
In delivering their second quarter results, JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) offered a glimpse into how badly the pandemic is impacting the financial health of American consumers and businesses. In conference calls with analysts and reporters, bank executives said they underestimated how long the pandemic would last and its impact on the economy.
Thanks largely to the funds set aside for bad loans, JPMorgan's profit fell by half in the April-June quarter, Citigroup's sank about 70% and Wells Fargo reported its first quarterly loss since the financial crisis of 2008.
The COVID-19 pandemic is now in month five, with infections hitting record highs in Florida, Texas and California, causing state and local authorities to again shut down parts of their economies. Trillions of dollars in economic support passed in April to keep Americans and businesses afloat is now coming to an end.
Bankers now seem to be bracing for the economy to keep struggling in the months ahead. The efforts to reopen local economies across the U.S. have contributed to the growing number of infections. California, the nation's most populous state, has scaled back many of its reopening initiatives as virus cases, hospitalizations and deaths all rise.
In its second-quarter results, JPMorgan said it set aside $10.5 billion U.S. to cover potentially bad loans. That's on top of the $8.3 billion U.S. the bank set aside in April, when the pandemic was starting to impact the U.S. economy.
The situation was just as bad at Citigroup and Wells Fargo. Citi, which is heavily exposed in credit cards, set aside an additional $7.9 billion U.S. to cover potentially bad loans. Wells Fargo, which did not set aside as much money as other banks in April, had to play catch in the second quarter, setting aside $8.4 billion U.S. to cover bad loans.
