Fact or fiction? The Federal Reserve Bank of New York, which artificially propped up the equity markets by pumping in several trillion dollars beginning last September, announced last week they “soon” will begin to reduce the amount of money it makes available to trading houses with short-term “repo” loans.
In either a state of denial or illusion, the bank cited improved money-market conditions as cause for the change.
Specifically, beginning 4 May, the bank will offer a morning round of repo loans but will no longer offer another in the afternoon. It also will offer three-month repo loans once a week, no longer twice.
The bank assured investors it will keep its repo operations “flexible” to respond to changes in market conditions, i.e., artificially inflate the markets as much as possible.
Big Banks Seeing Big Loan Losses
Bank of America, Citigroup, and Goldman Sachs together were hit by $12.8 billion in defaulting loans during the first quarter of this year. JPMorgan Chase and Wells Fargo reported loan losses totaling $12.3 billion. JPMorgan and Wells Fargo have each established extra pools of money to offset loans that go bad as a result of the current economic crisis.
JPMorgan added $6.8 billion to its offset fund, raising the total to $8.29 billion while warning more might still be needed.
The bank said the amount was based on the assumption that unemployment would pass 10 percent in the second quarter and the U.S. GDP would decline at an annualize rate of 25 percent during the period.
The bank’s analysts now forecast, however, 20 percent unemployment and a 40-percent annualized rate of decline.
Wells Fargo sequestered $3 billion, bringing its loss fund for personal and commercial loans to $3.83 billion.
Citigroup and Goldman Sachs both reported a 46-percent reduction in first-quarter income; Bank of America’s was down 45 percent.
Big banks’ share prices lopped off 3.7 to 6.3 percent on the news.
Banks have to assume that “we’ll be operating into a recession into 2021,” said David Solomon, Goldman CEO. That likely means a long period of significant numbers of loan defaults.
In the four weeks, 22 million U.S. workers have filed for unemployment benefits. About two million households have missed mortgage payments, according to some estimates.
Workers were short of cash before the virus struck because many had been running up credit card debt and tapping home equity as prices rose faster than wages in recent years.
Both Wells Fargo and JPMorgan have established programs to help troubled customers, such as forgiving late fees or suspending monthly payments.
Wells Fargo has heard from customers holding more than a million loans that their payments will be late. JPMorgan is seeing the number of late-paying credit card accounts spike.
Corporate clients have tapped credit lines to hoard cash, giving both banks a 6-percent boost in loan business and pushing the value of each bank’s loan portfolio above $1 trillion.
TREND FORECAST: The too-big-to-fail banks that got nearly $30 trillion in secret Fed injections to prop them up at the onset of the Panic of ’08 got even bigger… and they keep getting bigger.
According to the Financial Stability Board, a decade after the financial crisis, the world’s largest banks raised more than $1.5 trillion in capital, ten times higher than a decade earlier.
During that same period, America’s three largest banks, JPMorgan Chase, Bank of America, and Wells Fargo, have seen a 180 percent increase for a total of over 2.4 trillion.
Therefore, considering the banking powers that run and rule the global economies, we forecast the biggest banks will get bailouts, while smaller ones go under.
