October 25, 2020

The great bank of the USA builds reserves in the face of the “severe recession” due to the coronavirus



The largest US bank, JPMorgan Chase, reported on Tuesday a 69% drop in profits in the first quarter of 2020, mainly due to the huge reserve of money to face a “severe recession” caused by the COVID pandemic -19, a strategy that other entities are expected to follow, such as Wells Fargo.

JPMorgan obtained profits of 2,865 million dollars until the month of March (69% less compared to the same section of the previous year) and invoiced 29,069 million dollars (3% less), unusual figures that reflect how the firm led by the veteran executive Jamie Dimon prepares for potential loan defaults.

RESERVATIONS AGAINST NON-PAYMENTS

“The company’s bottom line results were extremely good, however, given the likelihood of a fairly severe recession, it was necessary to create credit reserves of $ 6.8 billion, resulting in credit costs of $ 8.3 billion this quarter,” Dimon explained. accounting for those results.

This remarkable provision reflects “the deterioration of the macroeconomic environment as a result of the impact of COVID-19 and the continuing pressure on oil prices” and represents 4.4 billion in reserves for consumer defaults, “predominantly in automobiles”, and 2.4 billion in the wholesalers’ invoices, remarked the chief financial officer, Jennifer Piepszak.

“In March we saw a sharp change in trends across all consumer segments. A drastic slowdown in disbursements across all forms of payment and a drop in volumes,” Piepszak explained in a conference call this morning, noting a “increase in demand for credit” by small businesses.

FUTURE PERSPECTIVES

JPMorgan updated its 2020 outlook and “expects tight spending of roughly $ 65 billion, largely due to low volumes and billing-related spending,” while its economists are mulling a scenario in which the country’s GDP would decline 40% in the second quarter and unemployment reaches 20%.

“We hope to continue accumulating reserves in the second quarter, but much will depend on the final effect of the extraordinary programs (of the Government and the Federal Reserve) and how effective they will be in bringing people back to employment,” added the executive.

For his part, Dimon, recently recovered from surgery, declared that “we have to wait for delinquencies in credit cards and charges to rise, something that until now we have not seen much but will see in the second quarter”, and He advocated “making plans for the worst,” although he did not rule out a “fourth round of stimulus” from the White House.

VOLATILITY, POSITIVE

JPMorgan’s interest margin was $ 14.5 billion, with little variation from the previous year because “the impact of lower interest rates was offset by the growth and diversification of its business balance and the greater margin in the area of corporate and investment banking, “explained the bank.

The coronavirus pandemic has ended the longest stock market cycle in history, but the entity has benefited precisely from volatility, achieving good results in corporate and investment banking, where a record in revenue has been recorded. of the market, 7.2 billion (32% more year-on-year).

WELLS FARGO, SHARED STRATEGY

This Tuesday also disclosed its results Wells Fargo, the third largest bank in the US, which similarly to JPMorgan had a sharp drop in profits (89%, to $ 653 million) and increased reserves for credit losses derived of COVID-19, which has forced businesses to stop and left 16 million people unemployed in the country.

“Our results were impacted by a 3.1 billion buildup of reserves, reflecting the expected impact these unprecedented times could have on our clients,” Wells Fargo Chief Financial Officer John Shrewsberry explained.

Furthermore, according to the Financial Times, Wells Fargo is recommending some small business clients to “apply elsewhere” in case the $ 350 billion government bailout program is fully subscribed before the bank can work. through a large number of pending requests.

An email sent to an applicant said that while “staying in our queue”, “you may want to apply elsewhere to increase your chances of receiving a loan before funds run out.”

BAD OPENINGS FROM GOLDMAN SACHS

Tomorrow, Wednesday, other financial components of the big US bank will publish their financial accounts, which analysts hope will carry out similar strategies to arm themselves with reserves in the face of the crisis, as well as investment management entities such as Goldman Sachs.

Precisely, Goldamn Sachs warned on Tuesday that he expects that in the United States the economic crisis derived from the COVID-19 pandemic will be up to four times worse than that of 2008 and pointed out that the unemployment figures could be similar to those suffered by the country during the Second World War.

In a note to its clients collected by local media, the bank points out that, however, there could also be an “unprecedented” economic recovery.

In this sense, Goldman Sachs places the decrease in the United States’ Gross Domestic Product (GDP) during the second quarter of 2020 at 11% compared to the previous year, a drop greater than any experienced in the great crisis of the past decade.

In addition, the unemployment rate could reach, according to the financial company, up to 15% and warns that due to the severity of the situation, many workers may be marginalized and not seek employment during an early reopening of the economy.

Regarding the recovery, the bank predicts that it could be possible to recover “at least” part of the lost production if a strong increase in tests is carried out, as well as changes in business practices that reduce the risk of infection, but that normal business will not come until there is a vaccine.

Nora Quintanilla

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