The major banking organizations report that they have set aside sufficient liquidity to cope with the current crisis and future waves of customer default. As of Q1 2020, they have already set aside €40 billion. Read all about it.
Record provisions for US banks
The impact of the Covid-19 crisis on US banks could be even greater than expected. JPMorgan Chase, which was the first to publish its quarterly results in April, set aside $6.8 billion, bringing total provisions to $8.3 billion. This provision is higher than any recorded since 2010.
Bank of America provisioned $4.8 billion, also marking a 10-year record. This provision impacted net income, which fell by 48.4% to $3.5 billion in Q1.
For its part, Goldman Sachs had to set aside $937 million in provisions, 4 times the usual amount, to make up for customer defaults. As a result, quarterly net profit halved to $1.1 billion.
According to Bank of America CFO Paul Donofrio, the situation is unlikely to improve in the coming months, despite the $2.2 trillion support plan announced by Donald Trump at the end of March. Indeed, in view of the rise in the number of unemployed, he anticipates "an increase in consumer defaults at the end of the year".
European banks take their turn to provision
The first results from the European banking sector were published recently, and show a surge in provisions. HSBC is the champion in this respect, with a provision of 2.8 billion euros in the 1st quarter. This led to a 48% drop in earnings, to 2.96 billion euros.
In the eurozone, Santander is leading the way, with a provision of 1.6 billion euros in Q1 2020. This caused quarterly earnings to plummet by 82% to 331 million euros. However, the Spanish bank has indicated that it intends to raise its targets once the crisis is over.
Having just got rid of the bad debts inherited from the mismanagement of its business in the past, the Italian bank Unicredit is once again having to face up to them by making a provision of 900 million euros to cover the impact of the Covid-19 crisis.
Credit Suisse kept 540 million euros in reserve. Despite this provision, the bank achieved its best quarterly profit in 5 years, at 1.24 billion euros. The publication of UBS's results was also a surprise, as the Swiss bank saw its net profit jump by 40% to 1.5 billion euros, despite 250 million euros in provisions.
American and European banks are thus preparing for a difficult year. To assess the cost of risk, each bank uses various scenarios based on a number of factors, such as estimates of net banking income and oil price trends.