U.S. Banks See Good Times Ahead Even as Many Prep for Downturn
(Bloomberg) -- Top executives at the biggest U.S. banks sound as upbeat as ever about the health of the consumer, even while many take steps to prepare for the inevitable downturn.
“The good news -- and the bad news -- is that conditions don’t get better than they are now,” Ram Ahluwalia, chief executive officer of PeerIQ, said in an interview. “When you’re at full employment, it’s very difficult to find other sustainable drivers of growth. We also have rising rates and a flat yield curve.”
PeerIQ, which provides data and analytics on the consumer-lending industry, released a report Tuesday showing many lenders are taking precautions such as increasing loan-loss provisions, especially among credit-card issuers.
American Express Co. increased reserves 29 percent in the third quarter even though loan growth was just 16 percent, according to the report. And Goldman Sachs Group Inc. raised its provisions more than 170 percent from a year earlier, a move PeerIQ blamed on rising defaults as well as loan growth.
“One can’t help but be struck by just how good the economy at this point is and, in some ways, it almost feels too good to be true,” Capital One Financial Corp. Chief Executive Officer Richard Fairbank said in his firm’s third-quarter earnings call.
On the other hand, JPMorgan Chase & Co. decreased its provisions for loan losses by 35 percent year-over-year, more than any other large bank, signaling confidence that consumer defaults and delinquencies will remain under control. Citigroup Inc. and Bank of America Corp. also cut provisions.
“Most banks have re-focused on high-quality consumer credit risk,” Ahluwalia said. “Large money-center banks have divested riskier lending businesses or re-focused the underwriting to target data-rich relationship customers,” he said, referring to clients that use multiple products such as checking or savings accounts.
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