The world’s largest banks have posted multibillion-dollar losses in what will come as a reality check for markets ahead of reporting season.
JPMorgan Chase posted a first-quarter loss of $2.9 billion – 69 per cent – as it set aside a record $8.2 billion for loan defaults, up $6.8 billion from the previous year in a move that reflects “deterioration in the macro-economic environment” due to the COVID-19 pandemic and continued pressure on oil prices.
The $4.4 billion increase in its consumer reserves was predominantly in card, while the $2.4 billion increase in its wholesale reserves was spread across oil and gas, real estate, and consumer and retail industries.
“Recognising the extraordinary extension of new credit… and knowing there will be a major recession mean that we are exposing ourselves to billions of dollars of additional credit losses as we help both consumer and business customers through these difficult times,” said CEO Jamie Dimon.
The bank also flagged an “extremely adverse scenario” where GDP contracted 35 per cent and it would consider suspending its dividend based on “extreme prudence” and uncertainty about the future. And while it entered the crisis “in a position of strength”, COVID-19 will continue to bite its bottom line.
“We now have delivered record results in nine of the last 10 years and are confident we will continue to do so in the future, though it should be expected that our earnings will be down meaningfully in 2020,” Mr Dimon said.
Meanwhile, Wells Fargo posted a first-quarter loss of 89 per cent – $2.5 billion – after setting aside $4 billion for loan loss provisions, up $3.2 billion from Q1 2019.
“Wells Fargo plays an important role in the financial system and the economic strength of our country, and we take our responsibility seriously, particularly in these unprecedented times,” said CEO Charles Scharf.
Wells Fargo’s commercial clients utilised $80 billion of their loan commitments in March.
Economists agree that the Reserve Bank is likely to remain in inflation fighting mode until December. ...