Every quarter the biggest banks in the country report on how they are doing. With the big banks their operations encompass all sectors of the economy, and it is important to see how they see the economy in action. More importantly they control access to credit, if you have credit and wish to use it to buy income performing assets or personal assets, in the grand scheme of things the big banks will know. The big banks can raise your interest costs on your credit and if you still want to buy you need to pay back greater amounts in interest.
In an article by Ken Sweet of the Associated Press, the big banks reported how they see the economy and they are preparing for a recession or more people and companies not being able to pay back their loans. The method the banks do this is increasing or decreasing the loan reserves. JPMorgan added $1 billion to loan loss reserves, while Citigroup and Wells Fargo added $400 million. It is noted at the height of the pandemic JPMorgan was putting $10 billion in reserves. If money goes into reserves, it is not lent out into the economy. When reserves come out, the banks invite their clients to use the money.
Jamie Dimon the CEO of JPMorgan describe the current situation as odd, reflecting delinquencies are low and consumer spending remains strong despite the inflationary headwinds. He did predict the extra saving US households socked away during the pandemic would likely be exhausted by mid 2023 if inflation is not under control. (when many gatherings were shut down, people did not spend on hospitality and travel, now they can).
Linking to dividend paying stocks, for your investments it is important to understand the basics of the industry and then you can make decisions. For banking it is loan loss provisions – the bank lends money do people and companies pay the money back. There are other factors but there are some basics for every industry. If you see the basics are covered, then you are going to be okay and do not have to do anything. If the basics are giving headwinds, then there is more research to be done.
There are more questions than answers, till the next time – to raising questions.