Major Financial Institutions Face Potential Loss of $24,400,000,000 Due to the Emergence of Troubled Loans

A mounting mountain of bad loans is casting doubt on the US banking industry’s optimistic outlook and putting pressure on the largest firms in the sector.

The Financial Times reported that JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup had non-performing loans totaling $24.4 billion in the fourth quarter of 2023. Non-performing loans are defined as loans to borrowers who have not made a payment in more than 90 days.

There was a $6 billion rise over the previous year, according to the figures. The experts predict that the delinquent loans and the increasing cost of deposits caused by increased interest rates will cause bank profitability to decrease in the last three months of 2023.

According to FT, in response to the changed economic environment, the banks are implementing a number of steps to reduce costs. Reportedly, Citigroup is feeling the pinch from layoffs and associated costs, while Wells Fargo has put aside $1 billion for severance payments.

Even though problematic loans have been on the increase, the largest US banks are lowering the amount of capital they put aside for future non-performing loans, indicating that they anticipate the trend to change.

A former Deputy Director of the Policy Development and Review Department of the International Monetary Fund (IMF), Desmond Lachman, has said that regional banks are also in a vulnerable situation, with the sick commercial real estate market accounting for around 18% of their loan portfolios.

As the IMF insider puts it, “Brookfield and Blackstone, two major real estate investors, have reportedly started to forego mortgage payments, as pointed out by Lachman.

Commercial property owners may begin to default on their debts as early as next year, according to this scenario. Small and medium-sized banks would be devastated by it.”

A 17% increase from the previous quarter and a 75% increase from 2022 compared to Q2 of last year were reported as “charge-offs,” or losses on loans that have been deemed unrecoverable, by US banks in Q3.

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