Risk Management

How The Big Banks Are Bracing For More Loan Losses

Banks Brace For Loan Losses

The consumer loan used to be a safe bet for the big banks, until the financial quicksand of 2008 tore the rug out from under the rules as they were. Now, the pillars of Wall Street are bracing themselves for another long-awaited shockwave of the credit ratings bubble.

The Wall Street Journal is reporting that JPMorgan Chase, Wells Fargo, Capital One and others are preparing themselves for expected losses from consumer loans gone sour. The efforts come in the form of increasing reserve stockpiles, though this is not without foresight — with larger reserves comes the capacity to take on more loans given at declining rates.

Still, some executives can’t help but recognize the the golden years of consumer lending may be behind them.

“We’ve had the best of times,” John Shrewsberry, CFO at Wells Fargo, said on an earnings call. “It probably gets a little bit more average.”

Under Shrewsberry’s direction, Wells Fargo injected $150 million into its loan-loss reserves at the close of the second quarter. That figure was dwarfed by Capital One’s contributions at $290 million, and JPMorgan rolled in $250 million to its defensive warchest.

It’s all part of what John Hecht, equity analyst at Jefferies Group, called an appetite to do what it takes to keep the wheels of commerce moving.

“Lenders are more willing or have to take on more risk to grow,” Hecht told WSJ.


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