Banks set aside billions, brace for more pain

Three of the nation's biggest banks revealed Tuesday that they had set aside billions of dollars to cover potential losses on loans, signaling that they don't expect consumers and corporations to be able to pay their debts in the coming months as the pandemic continues to gut employment and commerce.

Collectively, JPMorgan Chase, Citigroup and Wells Fargo have put aside $25 billion during the second quarter, they said. As a result, their quarterly profits plunged. It was Wells Fargo's first quarterly loss since 2008.

Bank executives said government aid had so far cushioned the economic fallout from the coronavirus pandemic, which sent millions of workers home beginning in March as cities and states began to shut down.

These federal programs, meant to help tide Americans over the worst of the crisis, include a $600 weekly supplement to unemployment benefits. But as the programs begin to expire in the coming months, banks expect their loan losses to mount because defaults will probably rise.

Banks, especially the nation's largest, have a view into almost every aspect of the economy, thanks to their businesses making home and auto loans, issuing credit cards and lending to small and medium-size businesses, as well as their Wall Street operations.

JPMorgan is preparing for the unemployment rate to remain in double digits for the rest of the year. Wells Fargo, too, set its unemployment forecast for 10 percent until the end of 2020.

JPMorgan's profit for April, May and June fell to $4.7 billion, just under half of what it earned a year earlier. The bank set aside nearly $11 billion to the pool of money it keeps ready to cover any losses, $9 billion more than last year, bringing its total credit reserves to near $34 billion.

Citigroup earned $1.3 billion during the second quarter, compared with nearly $5 billion a year earlier. It sent an additional $5.6 billion to its fund to cover future loan losses triggered by the widespread unemployment caused by the pandemic. And Wells Fargo, which relies far less on Wall Street for its earnings, lost $2.4 billion as the pandemic's economic shocks ravaged nearly every line of its business.

The bank added $8.4 billion to its reserve for loan losses, more than twice what it set aside last quarter.