As US Recession Looms, Banks Brace for Worse
US lenders can deal with a bad economy, but stress tests may not capture the extent of the Trump risks.
If the US slides into recession, banks will be ready – at least according to commentary on their earnings calls last week. “We and our customers come into the current environment from a position of strength, and that should serve us well,” said Wells Fargo & Co. Chief Executive Officer Charlie Scharf. Having just reported $4.9 billion of quarterly profit, Wells Fargo now has $163 billion of common equity in addition to $15 billion of loan-loss reserves to absorb whatever the economy throws at it. Between them, the eight largest banks in the US have equity capital of almost $1 trillion to cover potential losses.
That’s not to say they won’t be affected. “Banks are a cork in the ocean when it comes to the economy,” JPMorgan Chase & Co.’s Jamie Dimon said on his call. “If the economy gets worse, credit loss will go up, volumes can change, yield curves can change.”