NEW YORK (Reuters) – As the economy softens, consumers are starting to fall behind on credit card and loan payments, executives at major U.S. banks said.
Earnings for Bank of America (BAC.N), JPMorgan Chase (JPM.N), Wells Fargo (WFC.N) and Citigroup (CN) beat analyst expectations. But industry officials warned that this year’s strength will wane as a recession looms and customer delinquency increases.
Wells Fargo Chief Financial Officer Mike Santomassimo said on a conference call on Friday that the first-quarter results were “a gradual weakening of consumer finance health trends from a year ago.” said.
Delinquency and net charge-offs (debts to banks with low recovery potential) are rising slowly as expected, but consumers and businesses generally remain strong, says the bank’s chief executive, Charlie Scharf. said the CEO.
The company secured $1.2 billion in the first quarter to cover potential bad debt.
Citigroup also increased its allowance for credit losses, even though it earned more income from interest paid by its customers on credit cards.
Delinquencies had risen as expected, but were still below normal levels for the bank’s “very high quality” loan portfolio, said Mark Mason, the bank’s finance chief.
“We have tightened our credit standards particularly as a result of the current card market environment, and we continue to adjust our credit underwriting based on what we see based on macroeconomic trends,” Mason said. .
[1/5] People shop at a grocery store in Manhattan, New York City, USA on March 28, 2022. REUTERS/Andrew Kelly
By early 2024, delinquency rates will likely return to “normal” levels of 3% to 3.5% for branded cards and 5% to 5.5% for retail services, Mason said. Current delinquency rates are 2.8% for branded cards and 4% for retail services, according to Citi’s earnings statement.
Bank of America provided $931 million for credit losses in the fourth quarter, significantly higher than $30 million in the same period last year, while the fourth quarter provision was $1.1 billion. fell below Total net write-offs from credits reached $807 million, up from the previous quarter but still below pre-pandemic levels.
Alastair Borthwick, Chief Financial Officer of Bank of America, told reporters, “Consumers are doing great by any historical measure in terms of credit quality. Wages are also good and I haven’t seen any cracks in the portfolio yet.”
Some of JPMorgan’s clients were starting to fall behind in payments, but delinquency levels remain modest, said Jeremy Burnham, the nation’s largest lender.
“We don’t see a lot of indications of problems,” he said.
The bank increased its loan loss reserves to $2.3 billion in the first quarter, more than double year-over-year, reflecting net charge-offs of $1.1 billion.
UBS analysts, led by Erica Najarian, have predicted that worsening economic conditions “will lead to credit deterioration over 2023-2024, ultimately leading to losses above pre-pandemic levels.” Still, loan defaults are projected to be “below the peaks experienced in previous recessions,” they said.
Morgan Stanley analyst Betsy Grassek writes that net charge-offs will likely peak in a few quarters as large and medium-sized lenders become more conservative in their underwriting. “This means slower loan growth in 2023 and 2024,” she wrote.
American Express said in a filing on Tuesday that net charge-offs on its card loans rose slightly to 1.7% in March from 1.4% at the end of February. From February to March he had a steady amount of delinquent loans.
Reported by Tatiana Bowzer. Additional reporting by Saeed Azhar. Edited by Lananh Nguyen and Nick Zieminski
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