Big Banks Prepare for the Tough Days to Come
While many other industries are deeply threatened by the coronavirus outbreak, the country’s banks are still making billions, in part because the market volatility it brought about was a lucrative opportunity for their business divisions.
But the chaos caused by the pandemic, which has shut down businesses across the country and put millions of people out of work, is forcing them to set aside billions of dollars to prepare for future defaults.
“This is not a financial crisis,” Citigroup chief executive Michael Corbat said on Wednesday. “It is a public health crisis with serious economic ramifications.”
To prepare for fallout, Citigroup and other banks add to their reserves – which pinches their profits. Citi said on Wednesday it earned $ 2.5 billion for the quarter, a 46% drop from the previous year. It added $ 7 billion to its reserves, bringing its pool to nearly $ 21 billion.
“Although we have built up significant loan loss reserves,” Corbat said. “No one knows how severe or how long the impact of the virus will be on the global economy. “
Mr Corbat praised his employees for their efforts to help customers when needed, and said the bank was using its largely empty corporate cafeteria to prepare meals for food banks.
“We know that many consumers face real challenges and we are doing our best to support them,” he said.
Bank of America also announced its quarterly results on Wednesday, reporting a profit of $ 4 billion in the first three months of 2020, down from $ 7.3 billion a year earlier. The difference comes mainly from a $ 3.6 billion increase in the amount the bank has set aside for bad debts; the total reserved by the bank in this quarter reached $ 4.8 billion.
But as severe as the coronavirus is for most businesses, at Bank of America it triggered a 34% increase in income from the sale and trading of stocks, bonds and other financial products. This gain was generated during a period when some employees said they were under pressure go to the office despite the health risks. Bank of America said in a statement last week that it “spares no expense or consideration in caring for our people.”
Profits at Goldman Sachs fell 46% to $ 1.2 billion, reflecting an additional $ 937 million set aside for potential credit losses, losses in its asset management division and an increase technological costs.
But the bank’s income was mostly stable, helped in part by a 28% increase in trading income and a 25% increase in investment banking fees related mainly to direct loans to businesses and aid when they are traded. raised public funds through the bond and stock markets.