JPMorgan, Wells brace for impact; Credit Suisse asked to block bonuses
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Bank of America said its first quarter profit dropped 45% to $4.01 billion, down from $7.31 billion a year earlier as it set aside an additional $3.6 billion for potential bad debt. Revenue fell to $22.77 billion from $23 billion but slightly ahead of estimates.
Citigroup saw its first-quarter profit tumble 46% as it, too, pads reserves ($4.9 billion).
Goldman Sachs said it earned $1.21 billion in the first quarter, down 46% from $2.25 billion a year earlier as revenue held steady at $8.74 billion.
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Preparing for the worst
JPMorgan Chase and Wells Fargo “sent a clear message” in their first-quarter earnings reports Tuesday that “this recession is going to be bad,” the Wall Street Journal said. The two “set aside billions of additional dollars to get ready for a flood of customers to default on their loans as the coronavirus pandemic pummels the economy. Neither bank has yet seen a wave of loans go bad, but they are preparing for it as the economy plunges further into a presumed recession and millions remain out of work.”
“JPMorgan set aside an additional $6.8 billion in the quarter for potentially bad loans, largely in its consumer bank. That raised its total provision to $8.29 billion, more than the bank has had to take since 2010. But even that may not be enough, the bank warned. Wells Fargo said it set aside an additional roughly $3 billion in the quarter for potentially bad loans, both in the consumer and commercial divisions. That raised its total provision to $3.83 billion.”
Those provisions “may only be enough under a rosy scenario,” the Journal noted. “These are extraordinary amounts, especially against the placid credit markets of the past several years. But as the banks acknowledge, it may not be reflective of what is coming down the road in more dire scenarios. That could be particularly the case for risks to corporate borrowers.”
“The banks’ maneuvers to steel themselves for losses reflect their calculations that the $2 trillion economic relief bill, which includes direct payments to low-earning Americans as well as $349 billion in forgivable loans to small businesses, will not be enough to stave off widespread financial instability for everyday Americans and their employers,” the New York Times commented. “JPMorgan’s reserves, for example, are now close to the levels the bank felt it was necessary to hold in the immediate aftermath of the 2008 financial crisis, which brought about the Great Recession.”
Executives at JPMorgan and Wells “both said they would continue to review their dividend plans but saw no immediate reason to hold off,” the Washington Post said. “If they [companies] have ability to pay, it’s the right thing to do,” Wells CEO Charles Scharf said.
“That JPMorgan Chase is preparing for a possible surge in defaults was to be expected, but the numbers are still breathtaking — and the calculus behind those figures is telling,” American Banker’s Jon Prior reports.
Wells is relying less on “sharp recoveries” and thinking more about “a long, slow burn over the next couple of years,” CFO John Shrewsberry said.
Wall Street Journal
The president of the Federal Reserve Bank of San Francisco says she doesn’t expect the economy to bounce back any time soon, even if the coronavirus is contained quickly. “I don’t expect a sharp V-shaped recovery, I expect something more like negative quarters of growth throughout 2020, and then a gradual return to positive growth in 2021,” Mary Daly told the Journal. “Even then, she added, that view is entirely dependent on how the health crisis plays out.”
Held to account
A proxy advisor says Credit Suisse shareholders “should reject [the bank’s] compensation report and deny its leadership a discharge in an upcoming vote, the latest fallout from a spying scandal that cost ex-boss Tidjane Thiam his job,” Reuters reports. Glass Lewis said Thiam’s 2019 pay package, which totaled 10.7 million Swiss francs ($11.14 million), “did not adequately call him to account for leadership shortcomings and cultural lapses within the bank.” Credit Suisse, “which holds its annual general meeting on April 30, said it took note of the advisor’s recommendations for shareholders.”
“This is such a dramatic change of events. There are no models that have ever done this.” JPMorgan Chase CEO Jamie Dimon, commenting on the bank’s first quarter results and the effect of large loan loss reserves due to the coronavirus pandemic.