US bank profits plummet as lenders rebuild loss cushions amid uncertainty -FDIC

The Federal Deposit Insurance Corp (FDIC) logo is seen at the FDIC headquarters in Washington, February 23, 2011. REUTERS/Jason Reed

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WASHINGTON, May 24 (Reuters) – U.S. bank profits fell 6.5% in the first quarter of 2022 to $59.7 billion as large corporations increased loan loss provisions in response to economic uncertainty and heightened geopolitics, the Federal Deposit Insurance Corporation reported Tuesday.

Bank profits fell 22.2% from the first quarter of 2021, led by banks with more than $10 billion in assets that set aside more funds to guard against loan losses.

“Inflationary pressures, rising interest rates and geopolitical uncertainty could hamper bank profitability, weaken credit quality and reduce loan growth,” Acting FDIC Chairman Martin Gruenberg said. in a press release.

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Bank profits had reached record highs in early 2021 as the reduced impact of the COVID-19 pandemic led to a pickup in economic growth and allowed banks to reduce the huge loan loss reserves that they had been set aside at the start of the pandemic.

But profits have shrunk as banks have become less aggressive in cutting those cushions, while some big lenders are reversing course and rebuilding them, further eating away at potential profits.

In the first quarter of 2021, the industry reduced loan loss provisions by $14.5 billion, but started increasing them by $5.2 billion in the first quarter of this year.

This reserve growth was primarily driven by large banks with more than $10 billion in assets, as only 25% of all banks reported higher loan loss provisions, the FDIC said.

JPMorgan Chase & Co (JPM.N), Goldman Sachs Group Inc (GS.N) and Citigroup Inc (CN) combined, for example, set aside $3.36 billion in credit loss reserves in the first quarter of this year, the banks said. Read more

However, the industry said loan balances rose another 1% in the first quarter, mainly due to the increase in commercial and industrial loans. And non-current loan balances continued to decline, falling 4.5% in the first quarter to a non-current loan rate of just 0.84%.

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Reporting by Pete Schroeder, editing by Michelle Price, Chizu Nomiyama and Chris Reese

Our standards: The Thomson Reuters Trust Principles.

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