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‘It’s just very peculiar times’
Three of America’s six biggest banks released second-quarter earnings yesterday. The others report today and tomorrow. Based on the first batch of results, there’s trouble ahead.
Citigroup, JPMorgan Chase and Wells Fargo set aside $28 billion for loan-loss provisions, on top of $19 billion earlier this year. That pummeled second-quarter profits, which were collectively down more than 80 percent versus the same time last year. There could be some “kitchen sinking” — that is, dumping all the bad news into one quarter so future periods look better by comparison. Even so, there was little to be hopeful about.
It could get worse before it gets better. Jamie Dimon of JPMorgan said that unprecedented economic stimulus measures had delayed the effects he’d expect in a “normal recession,” like falling incomes, savings and property prices. “It’s just very peculiar times,” he told analysts on a conference call. If the economy picks up before stimulus programs expire, the banks’ loss provisions could be excessive. But that’s not what executives seemed to suggest:
• “May and June will prove to be the easy bumps in terms of this recovery. And now we’re really hitting the moment of truth, I think, in the months ahead.” — Jennifer Piepszak, JPMorgan’s C.F.O.
• “Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.” — Charlie Scharf, Wells Fargo’s C.E.O.
• “I don’t think anybody should leave any bank earnings call this quarter simply feeling like the worst is absolutely behind us and it’s a rosy path ahead.” — Mike Corbat, Citigroup’s C.E.O.
It’s not all bad. Trading and underwriting revenue surged, helping JPMorgan and Citi offset the gloom elsewhere. Retail-focused Wells Fargo wasn’t as lucky, recording its first quarterly loss in more than a decade. That could be particularly promising for Goldman Sachs, which reports today, and Morgan Stanley, which is up tomorrow. But ominously, lenders increased loss provisions for business loans more in percentage terms than they did for consumer debt, suggesting that they expect more corporate bankruptcies. (The Fed governor Lael Brainard warned as much yesterday).
Fun fact: Who needs cash when you’re stuck at home? Wells Fargo said that A.T.M. transactions were down 28 percent from a year ago, but the average withdrawal per visit was higher.
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