Coronavirus pandemic | Big Banks, readying for a recession, set aside billions

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The economic shutdown the coronavirus has caused has already forced millions of Americans out of work and threatened the future of thousands of small businesses, and the country’s biggest banks are bracing for the fallout.JPMorgan Chase and Wells Fargo — which on Tuesday were the first two major banks to report earnings this quarter —…

The economic shutdown the coronavirus has caused has already forced millions of Americans out of work and threatened the future of thousands of small businesses, and the country’s biggest banks are bracing for the fallout.JPMorgan Chase and Wells Fargo — which on Tuesday were the first two major banks to report earnings this quarter — set aside billions of dollars each for losses on loans to customers who may soon no longer have the means to repay them.The chief executive of JPMorgan, Jamie Dimon, said the bank was preparing for “the likelihood of a fairly severe recession.”JPMorgan, the country’s largest bank, added $8.3 billion to its reserves to prepare for impending defaults — a $6.8 billion increase from the same quarter last year. Wells Fargo set aside $4 billion, which was an increase of $3.1 billion.“The actual level of losses we incur will be driven by how long this period lasts and the level of support the government provides,” Wells Fargo’s chief executive, Charles W. Scharf, said on a call to discuss the results with Wall Street analysts.But the banks’ maneuvers to steel themselves for losses reflect their calculations that the $2 trillion economic relief bill, which includes direct payments to low-earning Americans as well as $349 billion in forgivable loans to small businesses, will not be enough to stave off widespread financial instability for everyday Americans and their employers.JPMorgan’s reserves, for example, are now close to the levels the bank felt it was necessary to hold in the immediate aftermath of the 2008 financial crisis, which brought about the Great Recession.Mr. Dimon said he believed it would be a few months before the country got back to something approaching economic normalcy.“A rational plan to get back to work is a good thing to do,” he said. “And hopefully it’ll be sooner rather than later, but it won’t be May. We are talking about June, July, August, something like that.”The banks’ preparations for the hard times ahead hit their profits hard in the last quarter.JPMorgan’s net income fell to $2.9 billion from $8.5 billion for the last quarter of 2019 and $9.2 billion for the same period a year earlier — with the bank’s new reserves essentially the difference. Wells Fargo reported a steep drop in profit to $653 million from $5.9 billion during the same period in 2019.JPMorgan expected consumer loans — most of them credit cards — to lose $4.4 billion while commercial loans to businesses in real estate, retail and oil and gas could lose $2.4 billion, according to its estimates. And Wells Fargo said $1 billion of its potential losses could come from loans to consumers and small businesses.The reserve-building activities spooked investors in both banks. Despite overall increases in the values of the major stock indexes on Tuesday, Wells Fargo shares were down by almost 4 percent and JPMorgan by 2.7 percent at the end of trading.But there were some bright spots, particularly at JPMorgan.The bank reported that revenue from trading things like foreign currencies, bonds and government debt rose 34 percent from a year earlier. Stock-trading revenue was 28 percent higher. Over all, revenue in the bank’s Wall Street markets division reached $7.4 billion, a record.And there is Mr. Dimon’s health. Mr. Dimon underwent emergency heart surgery in March, but returned to work on April 2. He said the operation had not changed his outlook for his future; he said he felt good and under no pressure to retire.“I’ve always liked working,” he said. “I think people having a purpose in life is a good thing.”Both banks reported their corporate clients were pulling cash from the lines of credits they maintain to deal with the economic effects of the outbreak.JPMorgan’s chief financial officer, Jennifer Piepszak, said on a call with reporters that corporate customers had taken cash out of their revolving credit lines at an unusually high rate. Mr. Dimon added that the rate was twice what it had been during the 2008 financial crisis.“People got scared,” he said.The bank also helped companies with good credit ratings raise more money through bond issues, Mr. Dimon said, adding that companies were piling up cash reserves to prepare for a long and slow journey out of the economic shutdown.Both banks are participating in the government’s $349 billion small-business loan program. JPMorgan said it had distributed $9.3 billion so far to businesses employing a combined 700,000 people. And at Wells Fargo, the Federal Reserve temporarily lifted a growth restriction it had imposed on the bank over its fake-account scandal to allow it to make loans to its small-business customers.But the banks’ preparations for personal and business customers who fall short of their obligations were a profound sign of the economic damage that the coronavirus had already done, even with the government interventions made so far. Both banks said they had started factoring the stimulus package into their economic forecasts as soon as it became law.Wells Fargo made its loss estimates in part by looking at the bank’s performance during the 2008 crisis, said John Shrewsberry, the bank’s chief financial officer. And, he said, the bank always set aside more than it ends up charging off.But, he said, the bank could set aside more soon, depending on how much worse conditions for everyday Americans become.“If things play out substantially worse, it’s certainly possible that we end up building more reserves,” Mr. Shrewsberry said.

Updated April 11, 2020

When will this end?
This is a difficult question, because a lot depends on how well the virus is contained. A better question might be: “How will we know when to reopen the country?” In an American Enterprise Institute report, Scott Gottlieb, Caitlin Rivers, Mark B. McClellan, Lauren Silvis and Crystal Watson staked out four goal posts for recovery: Hospitals in the state must be able to safely treat all patients requiring hospitalization, without resorting to crisis standards of care; the state needs to be able to at least test everyone who has symptoms; the state is able to conduct monitoring of confirmed cases and contacts; and there must be a sustained reduction in cases for at least 14 days.

How can I help?
Charity Navigator, which evaluates charities using a numbers-based system, has a running list of nonprofits working in communities affected by the outbreak. You can give blood through the American Red Cross, and World Central Kitchen has stepped in to distribute meals in major cities. More than 30,000 coronavirus-related GoFundMe fund-raisers have started in the past few weeks. (The sheer number of fund-raisers means more of them are likely to fail to meet their goal, though.)

What should I do if I feel sick?
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

Should I wear a mask?
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

How do I get tested?
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.

How does coronavirus spread?
It seems to spread very easily from person to person, especially in homes, hospitals and other confined spaces. The pathogen can be carried on tiny respiratory droplets that fall as they are coughed or sneezed out. It may also be transmitted when we touch a contaminated surface and then touch our face.

Is there a vaccine yet?
No. Clinical trials are underway in the United States, China and Europe. But American officials and pharmaceutical executives have said that a vaccine remains at least 12 to 18 months away.

What makes this outbreak so different?
Unlike the flu, there is no known treatment or vaccine, and little is known about this particular virus so far. It seems to be more lethal than the flu, but the numbers are still uncertain. And it hits the elderly and those with underlying conditions — not just those with respiratory diseases — particularly hard.

What if somebody in my family gets sick?
If the family member doesn’t need hospitalization and can be cared for at home, you should help him or her with basic needs and monitor the symptoms, while also keeping as much distance as possible, according to guidelines issued by the C.D.C. If there’s space, the sick family member should stay in a separate room and use a separate bathroom. If masks are available, both the sick person and the caregiver should wear them when the caregiver enters the room. Make sure not to share any dishes or other household items and to regularly clean surfaces like counters, doorknobs, toilets and tables. Don’t forget to wash your hands frequently.

Should I stock up on groceries?
Plan two weeks of meals if possible. But people should not hoard food or supplies. Despite the empty shelves, the supply chain remains strong. And remember to wipe the handle of the grocery cart with a disinfecting wipe and wash your hands as soon as you get home.

Can I go to the park?
Yes, but make sure you keep six feet of distance between you and people who don’t live in your home. Even if you just hang out in a park, rather than go for a jog or a walk, getting some fresh air, and hopefully sunshine, is a good idea.

Should I pull my money from the markets?
That’s not a good idea. Even if you’re retired, having a balanced portfolio of stocks and bonds so that your money keeps up with inflation, or even grows, makes sense. But retirees may want to think about having enough cash set aside for a year’s worth of living expenses and big payments needed over the next five years.

What should I do with my 401(k)?
Watching your balance go up and down can be scary. You may be wondering if you should decrease your contributions — don’t! If your employer matches any part of your contributions, make sure you’re at least saving as much as you can to get that “free money.”

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