US Banks Set Aside Record $28 Billion to Cover Potential Coronavirus Defaults

US banks JPMorgan, Citigroup, and Wells Fargo have collectively set aside a record $28 billion to cover potential defaults on loans amid the ongoing pandemic recession. This is the most banks have set aside for bad loans since 2008, with JPMorgan CEO Jamie Dimon stating, "This is not a normal recession." The banks' actions signal a slower economic recovery from the pandemic recession, marked by defaults, and have taken a hit from second-quarter profits to stockpile billions. JPMorgan now expects the unemployment rate to remain elevated above 10% for the remainder of the year, and the US gross domestic product will take longer to recover.

Key Takeaways:

• JPMorgan, Citigroup, and Wells Fargo collectively set aside $28 billion in the second quarter for bad loans, a record amount since 2008.
• The extra money set aside signals that the banks expect a slower economic recovery from the pandemic recession, marked by defaults.
• JPMorgan CEO Jamie Dimon stated, "This is not a normal recession," and that the effects of the recession have been pushed down the road due to stimulus measures.
• Citigroup CEO Michael Corbat expressed similar sentiments, doubting that the worst is behind the banks and that a V-shaped recovery is likely.
• JPMorgan set aside nearly $11 billion for possible loan losses, reducing its profit by half.
• Citigroup's net income was 73% lower than last year's due to setting aside $7.9 billion for bad loans.
• Wells Fargo reported a quarterly loss, its first since the financial crisis, after setting aside nearly $10 billion for a wave of defaults.

Statistics:

• $28 billion: The total amount set aside by JPMorgan, Citigroup, and Wells Fargo for potential defaults on loans.
• $11 billion: The amount set aside by JPMorgan for possible loan losses.
• $7.9 billion: The amount set aside by Citigroup for bad loans, resulting in a 73% decrease in net income.
• 10%: The expected unemployment rate for the remainder of the year, as predicted by JPMorgan.
• 2008: The last time banks set aside a similar amount for bad loans, amid the great financial crisis.

Sources:

• Bloomberg - "U.S. Banks Signal No V-Roture With Provisions Near 2008 Record"
• Business Insider - "Three US banks took a hit from second-quarter profits to stockpile billions to guard against a potential wave of defaults driven by the coronavirus pandemic"