US Wall Street Banks' Q1 Net Profit Halved... "Impact of COVID-19 Loan Losses"

[Image source=AP Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Major Wall Street banks in the United States saw their first-quarter net profits cut in half due to the impact of the novel coronavirus disease (COVID-19). Funds were allocated to build loan loss provisions as loan losses were anticipated.

According to the Wall Street Journal (WSJ) and others on the 15th (local time), Goldman Sachs recorded a first-quarter net profit of $1.21 billion (approximately 1.4713 trillion KRW), down 46% compared to the same period last year. Citigroup also reported a 46% decrease in first-quarter net profit to $2.52 billion, while Bank of America (BoA) saw its net profit fall 45% to $4.01 billion compared to the previous year.

The sharp decline in earnings for major banks is largely due to the impact of COVID-19. Goldman Sachs attributed the deterioration in net profit to expected loan losses and weakness in asset management. Goldman Sachs estimated that loan-related losses for the first quarter would amount to approximately $937 million.

David Solomon, CEO of Goldman Sachs, stated, "We are inevitably affected by the economic turmoil caused by the COVID-19 situation," emphasizing the need to scale back some planned investments to cope with the pandemic and to prepare plans under the assumption that a recession may occur this year and next.

BoA, like Goldman Sachs, set aside $3.6 billion for expected loan losses. Paul Donofrio, BoA’s Chief Financial Officer (CFO), explained that the final loan losses depend on how well the U.S. government’s support measures work and the situation of customers who are temporarily unable to receive pay. He added, "Considering the rise in unemployment, consumer losses are expected by the end of this year," and noted, "The biggest uncertainty is how long economic activity will be impacted by the virus."

Citigroup also set aside $4.9 billion in loan loss provisions. Mark Mason, Citigroup’s CFO, said, "Additional provisions are expected in the second quarter," but added, "It is too early to estimate how much that will be."

Earlier, JP Morgan and Wells Fargo, which announced their first-quarter results the previous day, saw net profits plunge by 69% and 89%, respectively. According to expert forecasts compiled by financial information firm Refinitiv, the net profits of companies included in the S&P 500 index are expected to decline by 10.2% year-on-year in the first quarter.