Banks set aside billions while they wait for consumer loan default
This week’s bank profits parade continued on Wednesday. We have received second quarter earnings reports from Goldman Sachs, PNC Financial Services Group and US Bancorp. PNC and US Bancorp do more consumer business than Goldman Sachs. And they both said they set aside more money for loan losses. So why are banks so worried about whether consumers will reimburse them?
At the end of the first quarter of this year, American consumers were in debt by a record $ 14.3 trillion.
“There is a lot of debt out there,” said Rita McGrath, a professor at Columbia Business School. She points out that $ 14 trillion in consumer debt was there before the pandemic hit.
“It’s kind of a time bomb that’s been around for a long time,” she said.
Now, the massive layoffs have left some consumers wondering how they’re going to pay their bills. Ian O’Neill lost his job as a technician on the New York set of CBS’s “FBI” series in mid-March. They were two days away from the conclusion of episode 19.
“And they decided that not only were we not going to complete Episode 19, we were not going to complete the remaining four episodes of the season. And that was it,” he said.
O’Neill is the breadwinner of his wife and two children. They have a balance of around $ 20,000 on their Discover card. Plus a car rental payment, student loan, and mortgage. O’Neill has said so far that he has been able to freeze all of those payments. They make do with his unemployment check. This includes an additional $ 600 per week, which runs out at the end of the month.
“When these programs start to run out, do I really panic about what I’m supposed to be doing?” O’Neill said.
His first priorities, he said, will be mortgage, utilities and food. Credit card debt? It comes last. The banks know this. G. Scott Clemons, chief investment strategist at Brown Brothers Harriman, said three of the largest consumer banks set aside billions in the second quarter to cover loans they may have to write off.
“But $ 30 billion in loan loss reserves for a single quarter tells you that they expect a lot worse to come,” Clemons said.
He added that the critical moment could come as early as September, especially if the unemployed do not find new jobs or no longer receive assistance from the federal government.
Why are consumer prices rising?
Some shoppers may have noticed that their grocery bills are higher lately. Energy prices and used cars and trucks are also on the rise. Jayson Lusk, head of the agricultural economics department at Purdue University, said several factors had pushed up food prices, including China which recently bought more American products, more drivers and challenges related to the pandemic in supply chains and the workforce. In addition, wages are on the rise, even though productivity increased faster as labor compensation for decades. “I expect inflation to probably continue for the next six semesters, at least,” Lusk said.
Learn more about inflation here.
What do the CDC’s most recent mask guidelines mean for stores and their workers?
You’ve now heard the news on these tips: Vaccinated people no longer need to wear a face mask indoors in most settings. Yet local governments and businesses are allowed to demand them. The mask warrants were tricky, even dangerous, so that public enterprises can navigate. Retail workers across the country have been harassed and physically assaulted while applying the mask mandates. “The updated guidelines created an impossible situation for retailers, ”said Lisa LaBruno, senior executive vice president of retail operations and innovation with the Retail Industry Leaders Association. “There is now an ambiguity in expectations, both from members of the retail team and from customers. “
Why do you have to be unemployed for more than six months before being classified as “long-term unemployed”?
After all, people are starting to feel the the stress and financial difficulties of long-term unemployment before reaching the 27 week mark. According to the latest data from the Bureau of Labor Statistics, 4.2 million Americans are long term unemployed. Patrick Carey, deputy commissioner at the Bureau of Employment and Unemployment in the Bureau of Statistics, has an explanation. “The break of 27 weeks or more fits well with the maximum length of time many states offer regular UI benefits,” Carey said.