Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo Bank collectively wrote off $3.4 billion in loans gone sour during this year’s first quarter, 73 percent more than in the same period in 2022, Bloomberg reported.
Rising inflation and higher interest rates, both increasing faster than real wages, are robbing consumers of their ability to keep up monthly payments they may have incurred when prices were stable and rates were still at record lows.
At the same time, many Americans are having to use credit cards to pay for necessities, driving up plastic debt to nearly $1 trillion, a new record, as we detailed in “Credit Card Debt Nears $1 Trillion, Sets Record” (7 Feb 2023).
The banks themselves are downplaying the rise in bad loans, saying that delinquencies are returning to normal levels now that COVID-era government stimulus payments have run out.
However, Bank of America has set aside an additional $360 million to cover the increase in consumer loans it expects to go bad in the future, according to Bloomberg. The amount at Goldman Sachs was $265 million.
JPMorgan Chase, the world’s largest credit-card company, lost $922 million in bad card loans in this year’s first three months, an 82-percent increase year on year.
The 30-days-late rate, a red flag for future losses, jumped from 1.09 percent a year ago to 1.68 percent.
In a conference call, Morgan CEO James Dimon shrugged off the losses and said there would be “a little bit of tightening.” The bank is more focused on the plight of commercial real estate loans, particularly related to offices, he added. (See “Spotlight: Office Building Bust” in this issue.)
Wells Fargo announced it is tightening requirements for issuing credit cards and has sequestered $1.2 billion to cover losses it expects among its commercial and consumer loans.
“We continue to see gradual weakening in credit performance,” Michael Santomassimo, the bank’s chief financial officer, said in comments quoted by Bloomberg.
TREND FORECAST: Consumers’ spending props up some 70 percent of the U.S. economy. As we have noted, more of them are using plastic to pay for necessities.
As interest rates rise and banks are less generous in issuing cards, not only will more shoppers fall behind in their payments; but also the U.S. economy will weaken, taking a giant step toward a recession.