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JPMorgan, Other Top Banks Brace For Defaults Amid Troubled Loans

The number of troubled loans sitting on the books of the top U.S. banks remains high despite significant improvement over the past few months, a new report finds.

A total of $90 billion in loans to businesses and individuals remained in forbearance, or about 5 percent of such loans, the Financial Times reports, citing regulatory filings by the four top lenders.

Still, it represents a significant decline from the end of June, when that number stood at more than twice that level, at $190 billion, with state lockdowns having eased since then and the economy having kicked into recovery mode.

However, with coronavirus infection rates soaring again and states and cities preparing for a surge in hospitalizations, analysts are also concerned whether that progress will continue.

“It is positive in that it is coming down as quickly as it is,” Marty Mosby, an analyst at Vining Sparks, told the FT. “The real issue is how far does it come down from here.”

Banks are also grappling with how to accurately gauge the true level of default risk on their books, with some consumers and businesses having signed up for loan forbearance programs in order to build a safety net for harder times ahead.

Among the bank CEOs hedging their bets is Jamie Dimon, CEO of J.P. Morgan Chase, who has warned that “his bank’s reserve for future loan losses could be as much as $10bn too high or $20bn too low,” the FT reports.

Meanwhile, the Federal Reserve is warning in a new report that major debt defaults may be on the horizon for the banking sector, potentially leading to a decline in asset prices.

Office towers, hotels, and shopping centers are among the asset classes considered to be vulnerable to a decline in prices as defaults rise.

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