Loans

JPMorgan, Other Big Banks Front-Load $66B To Cover Bad Loans

Banks are preparing for the worst in terms of bad loans

JPMorgan Chase was the biggest saver of funds in an effort by banks around the world to get ahead of a spate of bad loans they believe is coming.

The banks, combined, have set aside $66 billion for the prospect, which is likely due to the number of corporations that may have to default due to the virus’ economic destruction.

JPMorgan has set aside $8 billion, and fellow U.S. bank Citi has set aside $7 billion. U.S. banks as a whole have set aside a combined $26 billion. However, U.S. banks have tended to be more profitable than their European counterparts, perhaps able to afford a significant hit. Some are more exposed to credit card debt and lending to oil and gas companies.

U.S. banks have stopped lending as much to European businesses as well, showing the home bias that is expected during a financial crisis.

European banks, by comparison, have earmarked $11.5 billion for the effort. U.K. firms, along with Spain’s Banco Santander, led the pack in Europe. The European Central Bank has cautioned banks to be flexible when applying accounting standards, as the region is one where companies depend more on bank lending than on capital markets for funds.

Two of the more robust banks in Europe were HSBC Holdings and Barclays, which warned that credit losses could hit as much as $11 billion this year.

Many European banks have reduced lending to oil and gas companies, though. And UBS Group, which prepared the least of the six European banks with 0.27 billion, touted the high quality of borrowers, with many of them being millionaires who, despite falling values, can still back up their assets.

And governments have generally been good with aid packages to European banks, offering broad guarantees and relief from payments extended to corporate loans.

But the virus, as it has been everywhere, has caused concerns anyway, with banks feeling the uncertainty of the coming months and possibly facing the most loan loss provisions they’ve seen since the 2008 financial crisis.

In China, banks were already facing mountains of bad debt, and the crisis had regulators letting them be more lenient with how bad debt was classified. Lenders were letting small businesses defer payments and roll over on debt.

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