EDITOR NOTE: Four of the biggest banks in the US have more than $150 million in deferred debt. Hence, the loss provisions that many have reported. The obvious fact remains that banks can’t make a forecast based on the duration of the coronavirus pandemic. They can’t predict or fully assess the potential economic damage that might result from what’s happened thus far. They can only prepare for worst-case non-payment and default scenarios. Our future economic prospects hang in the balance--it’s not a matter of getting back to business but containing the virus in a way that business can reopen their doors. And right now, as the healthcare crisis worsens, the economic price to be paid in the end only gets steeper.
Uncertainty over the length of the pandemic and resulting economic crisis have made it difficult for banks to determine how many loans are likely to sour. JPMorgan, Bank of America, Citigroup and Wells Fargo set aside more than $32 billion for loan losses in the second quarter, close to a record, signaling that relief programs may not be enough to stave off a flood of bad debt.
The rapid rollout of forbearance programs in March averted financial ruin for millions of households, giving Congress time to bolster unemployment benefits and offer emergency aid to businesses. The goal was to avoid a tidal wave of defaults by borrowers who began losing income when states locked down commerce to slow infections.
The four biggest U.S. banks differ on how they report payment deferrals and loan modifications, and the total balance of financing with deferred payments is likely higher than $151.5 billion. While Wells Fargo, for example, reported $44.2 billion of consumer loans in deferral as of midyear, it said only that it modified $38.2 billion of commercial loans without disclosing the amount remaining in deferral by June 30.
Deferrals on residential mortgages and home equity loans were a common theme across all four banks. The majority of Wells Fargo’s consumer deferrals were on a combined $35 billion of first and second mortgages, representing 12% and 10% of each loan type, respectively. Almost 9% of JPMorgan’s residential real estate portfolio was subject to payment deferrals, representing nearly three-quarters of the total $28.3 billion of consumer loans in deferral.
At Citigroup, consumer credit cards represented the largest portion of modified loans, with $6.9 billion of debt enrolled in deferral programs, or 5% of its North American credit card business. The bank modified about $20 billion of consumer loans globally as of June 30.
Bank of America, which provided figures as of July 23, was deferring payments on $7.7 billion in commercial loans and $28.5 billion in consumer and small-business debt. About 7% of consumer card balances received modifications, as did 20% of small-business card balances.
Originally posted on American Banker