The big six US banks are making significant preparations for a wave of loan losses, according to recent reporting in the Financial Times. The banks are building up their reserves in anticipation of many customers defaulting on loans following the economic disruption triggered by the Covid-19 pandemic.
Bank of America, Citi, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo have reportedly made loan loss provisions collectively worth $25.4bn in the first quarter of 2020, a 350% increase year on year.
Gross total loans at the six banks stood at between $173bn at Morgan Stanley up to $1029bn at Bank of America in 2019. There is little to suggest from all six banks’ loan-to-deposit ratios (LDRs) that any of the banks have overextended themselves in their lending. The highest LDR belonged to Morgan Stanley at 90.7% in 2019, and the lowest to JPMorgan Chase at 63.59%.
However, given the level of the difficulties that the US, as well as the global economy, is experiencing, it may be tricky for the banks to accurately predict the scale of the challenge they face on souring loans.
