US Consumers Fall Behind on Payments Amidst Economic Softening

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Executives at the largest US banks have expressed concern over the weakening financial health of consumers as they begin to fall behind on credit card and loan payments. Despite better-than-expected profits for Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup in Q1 2023, industry leaders have warned that the current strength is expected to weaken due to an impending recession and increased delinquencies.

While net charge-offs and delinquencies have slowly risen as predicted, customer and business loans generally remain stable. However, Wells Fargo CFO, Mike Santomassimo, stated that financial health trends for consumers are gradually worsening compared to a year ago. Bank of America CFO, Alastair Borthwick, said that consumers are still in great shape by historical standards, but there is potential for cracks in the portfolio.

Citigroup has made larger provisions for credit losses and saw delinquency rates rise as expected. However, the bank's CFO, Mark Mason, has reassured investors that credit underwriting will be calibrated based on macroeconomic trends.

JPMorgan's largest US lender has also seen customers fall behind on payments, but CFO Jeremy Barnum said that delinquency levels remain modest. Despite this, the bank more than doubled its credit losses in Q1 2023 from the previous year, reflecting net charge-offs of $1.1 billion.

As the economy softens, worsening economic conditions are predicted to lead to credit deterioration throughout 2023 and 2024, with losses eventually surpassing pre-pandemic levels. However, loan defaults are forecast to remain below the peaks experienced in prior downturns. Large and medium-sized lenders are becoming more conservative in underwriting, which may lead to slower loan growth in 2023 and 2024.

In conclusion, as the US economy softens, the weakening financial health of consumers and increased delinquencies are becoming a concern for large banks. While loan defaults are predicted to remain below peak levels, banks are becoming more conservative in underwriting, leading to slower loan growth.

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