Updated at 12:45 p.m. ET
The dramatic collapse of the U.S. economy from the coronavirus is pummeling America's largest banks, raising new concerns about how much growth is slowing.
Wells Fargo lost $2.4 billion in the second quarter — its first quarterly loss since 2008 during the financial crisis — and said it expects to cut its dividend to shareholders by 80%. Citigroup saw its profit drop 73% in the quarter.
And JPMorgan Chase, the nation's biggest bank, was forced to set aside billions of dollars more to cover bad loans during the second quarter, although money it made from trading in the frothy financial markets assured it made a profit anyway.
The results underscore the toll that the recession is taking on big banks, which serve as a barometer of how the broader U.S. economy is faring. Hopes that the economy will rebound as fast as it declined — a so-called V-shaped recovery — seem increasingly unlikely.
"We still face much uncertainty regarding the future path of the economy," despite some positive economic data, CEO Jamie Dimon said in a statement.
With the financial markets booming, JPMorgan Chase made $9.7 billion from trading stocks and bonds, 79% more than a year earlier, largely because of the sharp rebound in stock prices since March.
Still, the bank anticipates bigger losses from commercial and consumer loans going sour, as the pandemic tightens its grip on the economy, and said it would set aside $10.5 billion to cover them. That's in addition to the $8.3 billion it set aside during the first quarter.
JPMorgan Chase emerged from the 2008 financial crisis in better shape than any other big banks, but this downturn promises to be of a different character, Dimon told investors.
Government stimulus programs have delayed some of the impact of the recession, and that impact won't be felt right away, Dimon said.
"This is not a normal recession. The recessionary part of this you're going to see down the road," he said.
Other banks also see a murky future and are preparing for a range of outcomes.
Citigroup CEO Michael Corbat said his bank is "prepared for a variety of scenarios and will continue to operate our institution prudently given this unprecedented situation."
"We believe it is prudent to be extremely cautious until we see a clear path to broad economic improvement," said Wells Fargo CEO Charles Scharf.
NOEL KING, HOST:
Three of the biggest U.S. banks reported their earnings this morning. Given the economic climate, there was concern. So what are we learning? Banks have been hit by the pandemic. They're setting aside billions of dollars to cover bad loans. But the news is not entirely bad. NPR's Jim Zarroli is here with the lowdown. Good morning, Jim.
JIM ZARROLI, BYLINE: Good morning.
KING: Which banks are reporting? And what is the headline for you?
ZARROLI: Well, you know, this is the week when the biggest banks tell us how they did during the second quarter. And this is important because they lend to a lot of businesses and consumers, so they give us an important sense of how the economy is doing. Today we got three big banks. One of them, Wells Fargo, actually lost money for the first time since the height of the financial crisis. Citigroup and JPMorgan Chase were profitable, although a lot less profitable than they have been, but they say they expect a big increase in bad consumer and business loans.
Borrowers are in big trouble, financially. More of them can't pay their loans off. You know, JPMorgan in particular says many of its customers deferred payments on credit cards, mortgage - and mortgage payments. For JPMorgan, it's about 1.7 million of their accounts. So the banks have to set aside more money to cover the losses. In the case of JPMorgan Chase, for instance, it has set aside more than $18 billion during the first half of this year alone. So this is huge. We haven't seen this kind of thing in a long time.
KING: So they're looking toward the future as they set aside money in case, you know, there are just billions in bad loans, and yet both JPMorgan Chase and Citigroup say they made profits during the last quarter.
KING: How'd they pull that off?
ZARROLI: Well, yeah, this is the paradox, and it goes to the kind of weird, bifurcated nature of the economy right now. You know, unemployment has soared. Many businesses are suffering. We've seen this long trail of bankruptcies and layoffs. You know, the economy's collapsed. On the other hand, the stock market is doing really well...
ZARROLI: ...Especially a few superstar stocks in the tech field, like Facebook, Amazon, Tesla. Now, a lot of people will say this doesn't make a lot of sense, necessarily, but it is helping to drive up the market. And remember that these big banks make a lot of their profits off trading, and so they're really benefiting from this. And in the case of Citigroup and JPMorgan, this was enough to make them profitable.
KING: So is there real reason for concern about the big banks right now?
ZARROLI: Well, I mean, it kind of depends on who you talk to. JPMorgan Chase's CEO Jamie Dimon was on - you know, in an earnings call this morning. He says the bank is - you know, can tolerate these kinds of loan losses. We are in really good shape, he says. You know, even if the loans losses get worse than they are - you know, and JPMorgan Chase is important. They - the investors watch them very carefully. It came out of the big financial crisis in much better shape than other banks. Dimon is, you know, incidentally, the only big CEO from that era who's still heading a bank. So people listen to him.
So, you know, what this means is it's not going to bring banks to their knees. This is not a banking crisis; it's an economic crisis. And there are worrisome signs. You know, Wells Fargo in particular said it was quite disappointed in its second-quarter results. It said, our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions it had last quarter. So, you know, there's a lot to be worried about - about where the broader economy is heading.
KING: NPR's Jim Zarroli. Thanks, Jim.
ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.