United States Faced with the economic consequences of the pandemic, the main American banks are preparing for the worst and are building up large reserves.
Bank of America, Citigroup and Goldman Sachs in turn portrayed a bleak picture of the US economy on Wednesday, shutdown by the coronavirus pandemic, setting aside billions of dollars to cover an expected avalanche of unpaid loans. reimbursed by individuals and businesses.
Billions in reserve
The three banks sent a message similar to that delivered the day before by their rivals JPMorgan Chase and Wells Fargo, namely that the hard part is yet to come.
Almost twelve years after the financial crisis, however, they wanted to make it clear that they had enough cash to withstand the current health crisis.
Bank of America provisioned $ 4.8 billion (4.6 billion francs), the highest amount since 2010, which reduced its net profit by 48.4% to 3.5 billion in the first quarter.
This includes a $ 1.1 billion charge for loans not repaid by businesses.
Citigroup’s profit plunged 46.6% to 2.5 billion after a $ 7 billion provision to cover future customer defaults.
“Our first quarter results were significantly impacted by the Covid-19 pandemic,” said general manager Michael Corbat.
Sign of the extent of the damage: Goldman Sachs had to provision $ 937 million, more than four times the amount it estimated a year ago to make up for customer defaults.
This amount is significant insofar as Marcus, its platform for loans and deposits intended for the general public, has only existed since 2016 and that its activity remains weak compared to the financing activities of the economy of its rivals.
“This increase is linked to (uncertainties surrounding the) credits granted to companies, especially those in the energy sector which are under pressure and to the impact of Covid-19 on the economic environment”, justified Goldman Sachs, adding Expect failures from the holders of the bank card it has been offering for several months in partnership with Apple.
Quarterly net profit was cut in half by almost $ 1.1 billion.
Speculation stands out
The situation should not improve in the coming months, warned Paul Donofrio, the financial director of Bank of America, while experts hope for a slight improvement due to the 2200 billion dollar plan promulgated at the end of March by Donald Trump for support the economy.
“In view of the increase in jobless claims, we anticipate an increase in consumer defaults at the end of the year, with the possibility that it will spread in 2021,” said Mr. Donofrio, during a conference call to analyze the results.
The sudden cessation of economic activity in the United States in mid-March was followed by the closure of thousands of businesses and SMEs. The factories are shut down.
The big companies, in search of cash, rushed to have immediate access to the lines of credit which the banks had opened to them to avoid going bankrupt.
Some 16 million Americans registered unemployed in late March and early April. Many households and SMEs find it difficult to pay their bills, their consumer loans and to honor their monthly payments.
The economy continued to send negative signals on Wednesday: retail sales fell in March, while manufacturing activity in the New York area returned to its all-time low in April.
Faced with this gloom, Bank of America, for example, authorized its customers to postpone the monthly payments of most of their loans for up to three months. About 16% of SME clients have already asked to benefit from this leniency.
Overdraft fees can also be waived for customers in difficulty, while foreclosures of homes of customers unable to repay their mortgage have been suspended.
If credits have become a headache, banks can rely, as is often the case during crises, on speculative activities.
Citigroup’s quarterly revenue increased 11.6% to $ 20.7 billion, thanks to a 37% jump to 6.5 billion in revenues from speculative activities, including brokerage of financial products related to materials commodities, currencies and bonds (Fixed Income).
The same Fixed Income activity saw its revenues jump 33% at Goldman Sachs.