FirstFT: US banks to report biggest jump in loan losses since pandemic

The largest banks in the US are set to report their biggest jump in loan losses since the onset of the Covid-19 pandemic when they begin to publish second-quarter results later this week.

JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley are predicted to have written off a collective $5bn tied to defaulted loans in the second quarter of this year, according to the average estimates of bank analysts as compiled by Bloomberg.

They will set aside an additional $7.6bn to cover loans that could go bad, according to the analysts’ forecasts.

Both figures are nearly double what they were in the same quarter a year ago. However, they remain below the hits big banks took at the beginning of the pandemic when charge-offs and provisions peaked at $6bn and $35bn respectively.

Credit cards are the biggest source of pain for a number of lenders while commercial real estate loans are also proving a drag on banks’ performance.

JPMorgan, Citi and Wells Fargo report earnings on Friday followed by BofA and Morgan Stanley on July 18 and Goldman Sachs on July 19.

Here’s what else I’m keeping tabs on today:

  • Biden’s UK visit: The US president meets British prime minister Rishi Sunak and King Charles III before heading to Lithuania for the Nato summit.

  • Fedspeak: Loretta Mester, president of the Cleveland branch of the Fed, will give an economic and policy outlook, while Atlanta Fed president Raphael Bostic will participate in a public event about US and Atlanta economies. Fed vice-chair for supervision Michael Barr and San Francisco Fed president Mary Daly will discuss bank supervision at separate events in Washington.

Five more top stories

1. China’s economy teetered on the brink of deflation in June, adding to calls for Beijing to launch a stronger stimulus package to sustain the country’s stuttering post-Covid recovery. The consumer price index was flat year on year and declined 0.2 per cent compared with the previous month, while factory gate prices fell at the fastest pace since 2016. Read more on the latest economic data from China.

  • More China news: Janet Yellen talked up the potential for ongoing US-China trade on a visit to Beijing that ended over the weekend.

2. The US and Germany are under intense pressure from other allies to show greater support for Ukraine’s eventual membership of Nato, just days before the military alliance’s leaders meet in Lithuania. “I think we have to lay out a rational path for Ukraine to be able to qualify to get into Nato,” the US president told CNN yesterday. Read more on Nato’s preparations for its summit in Vilnius.

3. A flaw in Revolut’s payment system in the US allowed criminals to steal more than $20mn of its funds over several months last year before the company could close the loophole, according to multiple people with knowledge of the episode. Read more about the incident which has not yet been publicly disclosed.

4. SVB Financial Group has sued the US Federal Deposit Insurance Corporation in a bid to recover $1.9bn in cash that the regulator has kept since it took over the group’s banking subsidiary in March. Read more on the lawsuit filed last night in a New York federal bankruptcy court.

5. Benjamin Netanyahu faces a fresh wave of resistance against his judicial overhaul plan, including threats by a big shopping centre chain to close its sites, as the Israeli prime minister’s hardline government returns to its bitterly disputed project. Parliament is due to vote today on one of its central elements. Here are more details.

The Big Read

Montage of Volodymyr Zelenskyy and Jens Stoltenberg with Nato logo, a tank and Ukraine’s flag
Volodymyr Zelenskyy, left, and Jens Stoltenberg © FT Montage/Reuters/Getty

As his battered troops continue to fight off a relentless invasion and attempt to claw back occupied territory in Ukraine’s south and east, Volodymyr Zelenskyy will this Wednesday be in Lithuania’s capital, Vilnius, with another strategic objective: to gain a seat at Nato’s table. But his bid poses difficult questions for the military alliance’s 31 members, from how prepared they are to fight Russia, to whether its mutual-defence clause needs to be earned before it is given.

We’re also reading and watching . . .

Chart of the day

Representatives of 168 member states of the obscure International Seabed Authority will gather today in Kingston, Jamaica for the start of a marathon, three-week negotiation to lay down the first operating guidelines for large-scale commercial mining on the seabed where metals needed in the electrification of the car industry are stored. Read more on what is at stake in the talks.

Take a break from the news

Advantage you? Put your SW19 Grand Slam knowledge to the test in the FT Globetrotter tennis quiz and see how well you actually know your Wimbledon.

Additional contributions by Tee Zhuo and Benjamin Wilhelm