US Banks Report $18.9 Billion Losses: JPMorgan Chase & Capital One Impacted by Bad Loans

Top US banks face financial setbacks as rising interest rates lead to significant loan defaults.

Financial Times reports that major banks, including JPMorgan Chase and Capital One, faced a combined $18.9 billion loss in Q2 due to defaulting loans. These banks are encountering a 17% increase in 'charge-offs' from the previous quarter, a rate 75% higher than 2022.

Source: BankRegData/Financial Times

During a recent earnings call, Capital One's CEO, Richard Fairbank, highlighted a shifting landscape in the US credit sector. He pointed out that the US had been operating in a unique credit environment over the past three years that heavily benefited borrowers. This favorable climate, according to Fairbank, was unparalleled and now, repercussions are expected. There is a belief within the industry that a correction or 'catch-up' is on the horizon, particularly concerning consumers who might have faced defaults in that period.

In anticipation of these impending challenges, banks are gearing up for a potential spike in loan losses. Proactively, they've allocated $21.5 billion as a safeguard against foreseeable financial setbacks.

Adding to the banking sector's concerns are recent actions by Moody's. The well-known rating agency has already downgraded 10 regional banks. Moreover, it's in the process of evaluating whether more prominent financial institutions should undergo rating reductions. The reason behind this is the looming threat of massive deposit withdrawals and the subsequent decline in profitability these banks might experience.

 


Aug 19, 2023

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