The finances of US households are in good condition overall, thanks to a healthy job market. Bank executives warn, however, that Americans are beginning to fall behind in their payments on credit card debt and auto loans.
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During the pandemic, both consumer debt and debt delinquencies were on the decline. This trend has reversed with less government assistance and higher prices.
Wells Fargo's chief financial officer Mike Santomassimo said that the write-offs of bad debt, or what bankers call "net charge-offs", are still lower than pre-pandemic, but are on the rise.
Santomassimo told investors on a call held April 14 that consumer delinquencies have been increasing. While most consumers are resilient, some consumer financial trends have been deteriorating over the past year. We've taken credit tightening measures to prepare for a slower economy.
Economists and investors pay close attention to the spending of American households, as the US economy is sending conflicting signals about whether or not a recession will occur in 2023. If there are problems paying back debts, it could indicate a decrease in consumer spending as well as further cuts at businesses.
Santomassimo stated that consumer lending has slowed down, despite the fact that certain segments of business lending have grown.
What other large banks have to say about the increase in net charge-offs.
Bank of America reported a $118 million increase in losses in the first quarter, primarily due to delinquent payments on credit cards. The bank stated that this is still below the pre-pandemic level in its latest earnings release.
Brian Moynihan, CEO and Chairman of Bank of America, said that the financial position of consumers remains healthy. They are employed, have higher wages and strong account balances. They also have easy access to credit.
JPMorgan Chase's net charge-offs increased by almost $500 million during the first quarter, as delinquencies returned to pre-pandemic levels.
The big banks do not see any problem with consumers' borrowings despite the increased funds to cover loan losses.
"There's a point where consumers have too much power," said Jeremy Barnum. Chief Financial Officer at JPMorgan Chase. "We haven't seen that yet."