Even the investment banks were not immune
to the pandemic. Goldman Sachs’ first-quarter
profit dropped by 46% from a year earlier, due
to significant losses on its own investments
as well as a buildup in reserves for potential
loan defaults.
The coronavirus outbreak has bought the U.S.
economy to a virtual standstill in just weeks.
Most economists — and bank CEOs — expect
the U.S. to go through a depression. The only
question is how severe: Second-quarter gross
domestic product is expected to drop from 30%
to 40% and the unemployment rate is seen
rising as high as 25%.
JPMorgan CEO Jamie Dimon said the bank was
preparing for a “severe recession.” Wells Fargo
CEO Charlie Scharf said, “We all know we haven’t
seen anything like this before.”
One signal on how quickly consumers are
pulling back came in the latest retail sales data
from the government. Retail sales fell by 8.7% in
March, the worst monthly drop in that datapoint
on record. Consumers spending accounts for
roughly 70% of U.S. gross domestic product, so
that drop is particularly troublesome.
Bank of America’s own data showed the
consumer pulling back dramatically. Until the
beginning of March, spending on BofA’s credit
and debit cards was running at a steady 7.5%
growth rate. That’s a fairly standard figure for the
industry. By early April, that figure had dropped
to roughly 2%.
Many of the loans now at risk were fine only
weeks ago, but the pandemic has caused
companies to shutter and millions to be put out
of work.