The largest US banks are this week set to report the biggest jump in loan losses since the onset of the coronavirus pandemic.
The publication of second-quarter results is set to show that rising interest rates have piled mounting pressure on borrowers across the economy.
Commercial real estate loans are also proving a drag on banks’ performance. Property owners face reduced demand for office space as remote and hybrid work arrangements persist even though the pandemic has ended.
After three years of relatively low defaults, in part fuelled by pandemic-era stimulus cash and other government assistance, lenders are also starting to see the negative effects of higher rates and inflation on borrowers.
The nation’s six largest banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — are predicted to have written off a collective $5bn tied to defaulted loans in the second quarter of this year, according to the average estimates of bank analysts, as compiled by Bloomberg.
The six lenders will set aside an estimated additional $7.6bn to cover loans that could go bad, analysts estimate.
Wells Fargo, the biggest CRE lender among the nation’s largest banks, told investors this month that it added $1bn to its loan loss provisions to cover potential losses tied to office buildings and other poor performing properties.
JPMorgan, which will be one of the first to report on Friday, is expected to announce the biggest percentage jump in loan losses from the same period a year ago.
Analysts predict the combined cost of losses marked as unrecoverable and new provisions was $3.8bn in the second three months of the year, up 120% from the $1.8bn in the same quarter a year ago.
Combined loan losses at Wells Fargo and BofA are expected to have more than doubled in the quarter, with a 70% jump at Goldman Sachs and 60% increases at Morgan Stanley and Citi.
