NEW YORK – With tens of millions of Americans out of work and many businesses shut down or operating under restrictions due to the coronavirus, three of the nation’s biggest banks set aside nearly US$30 billion in the second quarter to cover potentially bad loans that were fine only a few months ago.
The results from JPMorgan Chase, Wells Fargo and Citigroup on Tuesday offer perhaps the broadest glimpse yet into how badly the pandemic is impacting the financial health of American consumers and businesses.
Bank executives, in conference calls with analysts and reporters, said they underestimated how long the pandemic would last and its impacts on the overall economy.
Thanks largely to the funds set aside for bad loans, JPMorgan’s profit fell by half in the April-June quarter, Citigroup’s sank about 70% and Wells Fargo reported its first quarterly loss since the financial crisis of 2008.
Back in April the talk among many economists and Wall Street analysts was that the U.S. economy was going to go through a “V-shaped” recovery: the shutdowns and stay-at-home orders would cause massive job and business losses, but once reopened, things would quickly return to normal.
That scenario has not played out.
The U.S. coronavirus pandemic is now in month five, with infections hitting records in Florida, Texas and California, causing state and local authorities to again shut down parts of their economies.
The trillions of dollars in economic support passed in April to keep Americans and businesses afloat is now mostly running out. Enhanced unemployment benefits expire at the end of the month unless Congress acts, and at this point many consumers are upward of 90 days past due on debts that would be in collections if it wasn’t for government and bank-sponsored forbearance programs.
Bankers now seem to be bracing for the economy to keep struggling in the months ahead. The efforts to reopen local economies across the U.S. have contributed to the growing number of infections.
California, the nation’s most populous state, on Monday scaled back many of its reopening initiatives as virus cases, hospitalizations and deaths all rise.
The Federal Reserve last month told the nation’s biggest banks to brace for a potential double-dip recession, with things deteriorating once again later this summer and into fall.
“The pandemic has a grip on the U.S. economy and it doesn’t look like things will get better until a vaccine is available,” said Michael Corbat, the CEO of Citigroup, in a call with investors.
In a call with reporters, JPMorgan Chief Financial Officer Jennifer Piepszak said the bank now expects “a much more protracted downturn” than what it forecast back in April.
“Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,” JPMorgan Chase CEO Jamie Dimon said in a prepared statement.
In its second-quarter results, JPMorgan said it set aside US$10.5 billion to cover potentially bad loans. That’s on top of the US$8.3 billion the bank set aside in April, when the pandemic was only just starting to impact the U.S. economy.
The situation was just as bad at Citigroup and Wells Fargo. Citi, which is heavily exposed in credit cards, set aside an additional US$7.9 billion to cover potentially bad loans. Wells Fargo, which did not set aside as much money as its peers in April, had to play catch up this quarter, setting aside US$8.4 billion to cover potentially bad loans.
“Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter,” said Wells Fargo’s CEO Charlie Scharf in the company’s earnings release.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
