JPMorgan Chase and Bank of America Face $4.5 Billion in Bad Debt Losses

In the first quarter of this year, JPMorgan Chase and Bank of America, the two largest banks in the United States, recorded losses on debts totaling $4.5 billion. These losses were incurred because customers could not repay their debts, marking a significant increase compared to last year.

Specifically, the amount of bad debt has nearly doubled compared to the same period last year. Bank of America reported net charge-offs of $1.5 billion, a significant rise from $807 million the previous year. The majority of these losses are attributed to credit card debts unlikely to be recovered.

Alastair Borthwick, Chief Financial Officer of Bank of America, highlighted during an earnings call that the bank is observing financial strains among borrowers with subprime credit ratings, exacerbated by rising interest rates and inflation. He explained, “While lenders profit from interest payments, their goal is to avoid situations where loans fall so far behind that they must be written off.”

Further industry trends show increasing charge-offs across other major banks, including Citigroup and Wells Fargo. This is aligned with findings from a recent Federal Reserve survey, which reported that banks are tightening lending standards across various loan types, including home equity lines of credit (HELOCs), credit cards, and auto loans. The survey also noted a decrease in demand for these credit products.

Despite these challenges, both JPMorgan Chase and Bank of America affirm that their balance sheets remain robust. JPMorgan Chase reported a profit of $49.6 billion last year, while Bank of America’s earnings were $24.9 billion.

Additionally, JPMorgan Chase reported that its net charge-offs reached $2 billion in the early months of this year, as per Reuters. These financial indicators are crucial as they reflect the broader economic pressures facing consumers and the consequent impacts on major financial institutions.