JPMorgan, Citigroup Boost Loan Loss Reserves: Citigroup Losses Greater Than Expected

Despite slowing rising incomes, consumers struggle to keep current with debt payments. As a result, both Citigroup and JPMorgan raised loan loss reserves the most in four years. Citigroup did not see this coming.

Banks have enjoyed years of declining losses from fewer consumers defaulting on debts. They appear to be preparing for a turn.JPMorgan Chase & Co. and Citigroup Inc. just boosted their reserves for consumer-loan losses by the most in more than four years.

Both lenders set aside money last quarter because they expected write-offs for credit-card lending to climb in periods ahead, with Citigroup saying the increase is coming faster than it had anticipated.

Working-class Americans devoted a growing percentage of their income to paying debts last year, the first increase since 2010 and a shift that’s likely contributing to rising default rates, Moody’s Investors Service said this week.

“We’re seeing a turn in the sense that the abnormally pristine credit environment has clearly reversed,” said Jim Sinegal, an analyst at Morningstar Inc. “I would say it’s more of a normalization,” and not a sign “we’re headed back towards perhaps a recession.”

It All Starts Somewhere

“The last thing you want to do in any sort of consumer-credit business is take your eye off the ball or get complacent, and so we’re not getting complacent,” Citigroup Chief Financial Officer John Gerspach said on a call with reporters.

Citigroup’s current delinquency rate of 2.84 percent in its North American branded credit-cards business will probably increase to 2.95 percent in 2018, Gerspach said. It will ultimately rise to between 3 percent and 3.25 percent by 2020, which would be in line with historic norms, he said.

Mish Translation: We are complacent and have understated the risks.

Mike "Mish" Shedlock

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