FirstFT: US banks to report biggest jump in loan losses since pandemic

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The largest US banks are set to report their biggest jump in loan losses since the onset of the Covid-19 pandemic, with the six largest American lenders forecast to write off a collective $5bn tied to defaulted loans when they publish second-quarter results this week.

The banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley — will set aside an estimated additional $7.6bn to cover loans that could go bad, according to analysts’ forecasts compiled by Bloomberg.

Both figures are nearly double what they were in the same quarter a year ago. However, they remain below the hits big banks took at the beginning of the pandemic when charge-offs and provisions peaked at $6bn and $35bn respectively.

The results are also set to show that banks have benefited from higher interest rates to some degree by boosting lending and investment income. But after three years of relatively low defaults, in part fuelled by pandemic-era stimulus cash and other government assistance, lenders are starting to see the negative effects of higher rates and inflation on borrowers.

Here’s what else I’m keeping tabs on today:

Mansion House dinner: UK chancellor Jeremy Hunt is expected to use the set-piece annual speech in London to set out a series of reforms to channel billions of pounds of pensions into high-growth companies. Bank of England governor Andrew Bailey is also expected to speak at the event.
Biden’s UK visit: The US president meets British prime minister Rishi Sunak and King Charles III before heading to Lithuania for the Nato summit.
Thames Water: Sir Adrian Montague, an experienced City troubleshooter, succeeds Ian Marchant as chair of Britain’s crisis-hit water monopoly.

Five more top stories

1. Banks sold a record amount of ultra-safe mortgage-backed debt in the first half of the year, surpassing the previous high in 2011. Lenders sold more than €175bn of so-called covered bonds, a form of usually triple A debt backed by the issuing bank and an underlying pool of assets, as they rushed to lock in a cheap source of funding during a turbulent period for the sector.

2. Benjamin Netanyahu faces a fresh wave of resistance against his judicial overhaul plan, including threats by a big shopping centre chain to close its sites, as the Israeli prime minister’s hardline government returns to its bitterly disputed project. Parliament is due to vote today on one of its key elements. Here are more details.

3. Exclusive: Deutsche will run the German credit card business of Lufthansa’s frequent-flyer scheme Miles & More from 2025. The deal is expected to more than double the bank’s annual volume of credit card transactions. Read more on the German bank’s strategy to grow its payments business.

4. Exclusive: Gucci owner Kering paid €3.5bn to acquire Creed, whose colognes have been worn by royalty. The high price was not made public when the deal was unveiled last month, as the companies did not want to broadcast the fragrance brand’s profit margins, said people familiar with the matter. Here’s what the steep price tag says about the French luxury group’s ambitions.

5. The US and Germany have resisted pressure to advance Ukraine’s Nato bid, backing a concluding statement for the alliance’s summit this week that does not fully endorse a “pathway” to membership. This has caught other members off-guard and threatens to overshadow other proposals for Kyiv’s longer-term security. Read more on what officials called the “conservative” stance by Washington and Berlin.

The Big Read

As his battered troops continue to fight off a relentless invasion and attempt to claw back occupied territory in Ukraine’s south and east, Volodymyr Zelenskyy will this Wednesday be in Lithuania’s capital, Vilnius, with another strategic objective: to gain a seat at Nato’s table. But his bid poses difficult questions for the military alliance’s 31 members, from how prepared they are to fight Russia, to whether its mutual-defence clause needs to be earned before it is given.

We’re also reading and watching . . .

Chart of the day

On the face of it, the eurozone’s jobs recovery has been almost as impressive as in the US. However, although there are more jobs, people are working fewer hours on average. Some analysts say this reflects a growing preference for leisure time after the Covid-19 pandemic, but rate-setters suspect labour hoarding, in which companies worried about hiring difficulties hang on to workers even as business tails off.