• US banks suffered $18.9 billion in losses in the second quarter of this year due to soured loans
• Banks have set aside $21.5 billion in contingency funds for future potential losses
• Moody’s has cut its ratings of 10 regional banks and is considering downgrading additional big lenders
US Banks Suffer Billions in Losses
America’s biggest banks are taking hits to their bottom line as soaring interest rates cause billions of dollars in loans to fall apart. JPMorgan Chase, Capital One and others lost a combined $18.9 billion in the second quarter of this year due to soured loans, reports the Financial Times.
Charge-Offs on the Rise
The banks are facing “charge-offs,” or losses on loans that have now been designated as unrecoverable at a 17% higher rate than the previous three months, and a 75% higher rate than 2022. Capital One CEO Richard Fairbank said that the US is coming out of an “unprecedented” credit environment that favored borrowers, and that some type of consequence was inevitable.
Banks Prepare for Loan Losses To Continue Rising
Banks are now preparing for loan losses to continue rising, and have already set aside $21.5 billion in contingency funds for future potential losses. The new numbers on loan losses come after Moody’s cut its ratings of 10 regional banks and announced it’s considering whether to downgrade a number of additional big lenders due to the potential for further deposit flight and “eroding” profitability.
Moody’s Takes Action Against Regional Banks
Moody’s has taken action against 10 regional banks with lowered ratings due to concerns over eroding profitability from deposit flight – as well as potential downgrades for additional large lenders – due to further bad debt being identified by their contingency funds which were set up earlier this year.
Conclusion
In conclusion, US banks are facing heavy losses due to high interest rates causing bad loans totalling almost nineteen billion dollars – with further potential downgrades from Moody’s hovering over them if more bad debt is discovered among their contingency funds. This could lead to even bigger financial woes for these big institutions moving forward into next year unless they can find ways to reduce their risks quickly before more serious damage is done within their portfolios.
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