JPMorgan Chase and Capital One’s Bad Loans Lead to $18.9 Billion Losses in US Banks

Rising Interest Rates Trigger Multi-Billion Dollar Losses in Top US Banks.

The substantial impact of surging interest rates on the financial landscape has caused substantial upheaval in America’s leading banks. JPMorgan Chase, Capital One, and other prominent institutions have collectively incurred a staggering $18.9 billion loss in the second quarter of this year, primarily due to the deterioration of loan assets, as outlined by the Financial Times.

These financial behemoths are grappling with an escalated occurrence of “charge-offs,” wherein loans have been marked as unrecoverable. The rate of such losses has surged by 17% compared to the preceding three months, and a remarkable 75% surge from the figures of 2022.

In a recent earnings call, Capital One’s CEO, Richard Fairbank, underscored the unique credit environment that the United States has recently emerged from. He stated that the nation had navigated through an “unprecedented” phase, favoring borrowers, which inevitably carried consequences. Fairbank noted, “We mustn’t forget that the credit performance we witnessed over the past three years was unparalleled… This implies that there is some balancing out to be expected on the flip side, especially concerning consumers who might have otherwise defaulted during the past three years.”

Anticipating a further surge in loan-related losses, banks are taking proactive measures and have already allocated a substantial $21.5 billion to contingency funds to cushion against potential future losses.

These revelations about loan losses arrive on the heels of Moody’s downgrading the ratings of 10 regional banks. Furthermore, the credit rating agency has expressed contemplation about downgrading additional significant lenders, driven by concerns of impending deposit flight and the gradual erosion of profitability.

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