In the final quarter of 2024, America’s largest banks faced a significant challenge as delinquent loans surged, reaching a staggering $11.8582 billion across JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs.
According to a report by S&P Global, commercial and industrial (C&I) loan delinquencies jumped by 6.4% quarter-over-quarter and 19.8% year-over-year, hitting a total of $31.04 billion with a delinquency ratio of 1.31%.
This alarming rise in sour debt signals growing stress in the commercial sector, impacting the financial stability of these banking giants.
In this article, we delve into the causes, implications, and future outlook of this delinquent loan crisis, providing a comprehensive analysis to help you understand its significance.
What Are Delinquent Loans?
Delinquent loans are loans where borrowers have failed to make scheduled payments for a specified period, typically 30 to 90 days.
These loans pose a risk to banks as they may become non-performing, leading to potential write-offs or net charge-offs—debts deemed unrecoverable.
The surge in delinquent C&I loans at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs reflects broader economic pressures, including high interest rates, inflation, and cautious borrower behavior.
The Scale of the Delinquent Loan Problem in Q4 2024
The $11.8582 billion in delinquent loans held by JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs is part of a larger $31.04 billion in delinquent C&I loans across U.S. banks.
This represents a significant uptick from previous quarters, driven by:
- 6.4% quarter-over-quarter increase in delinquent C&I loans.
- 19.8% year-over-year increase, highlighting a worsening trend.
- A delinquency ratio of 1.31%, indicating a higher proportion of loans at risk.
Meanwhile, the total C&I loan balance across U.S. banks fell by 5.2% quarter-over-quarter and 4.3% year-over-year to $2.371 trillion, partly due to a classification change excluding margin loans from the C&I category.
This decline in loan balances, coupled with rising delinquencies, underscores a cautious lending environment.
Why Are Delinquent Loans Surging at Major Banks?
Several factors contribute to the surge in delinquent loans at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs:
- High Interest Rates: The Federal Reserve’s rate hikes, which began in 2022, have increased borrowing costs, making it harder for businesses to service debt. Posts on X reflect public sentiment, with users noting that high interest rates on expensive items lead to payment defaults when cash flow dries up.
- Economic Uncertainty: Businesses are adopting a “wait-and-see” approach, as noted by JPMorgan Chase COO Jennifer Piepszak. This caution has led to muted lending demand and increased refinancing activity rather than new loan growth.
- Inflation Pressures: Persistent inflation has strained corporate budgets, particularly for small and medium-sized enterprises, contributing to higher delinquency rates.
- Commercial Sector Stress: The commercial real estate sector, a significant component of C&I loans, faces challenges from remote work trends and reduced office space demand, increasing the risk of loan defaults.
These factors have created a perfect storm, pushing delinquent loans to levels not seen in recent years.
Impact on Major Banks
The $11.8582 billion in delinquent loans is a substantial burden for JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs, but the impact varies:
- JPMorgan Chase: As the largest U.S. bank, JPMorgan Chase reported $2.087 billion in net charge-offs in Q3 2024, up 40% from $1.497 billion in Q3 2023, driven by credit card delinquencies and consumer loan defaults.
- Bank of America: Bank of America recorded $1.534 billion in net charge-offs in Q3 2024, a 64% increase from $931 million the previous year, primarily due to credit card debt.
- Wells Fargo: Wells Fargo saw net charge-offs surge to $1.111 billion in Q3 2024, up 54% from $722 million in Q3 2023, reflecting struggles among lower-income borrowers.
- Citigroup: Citigroup reported $2.172 billion in net credit losses in Q3 2024, a 32% jump from $1.637 billion the prior year, with consumer loans heavily impacted.
- Goldman Sachs: While Goldman Sachs has a smaller consumer lending portfolio, its exposure to C&I loans contributes to the collective delinquent loan figure, though specific charge-off data is less detailed.
Despite these losses, the banks remain profitable, with JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs collectively earning $145.68 billion in profits in 2024, a 20% increase from 2023.
This resilience is driven by strong investment banking and dealmaking revenues.
Broader Implications for the Banking Industry
The surge in delinquent loans has far-reaching implications:
- Tighter Lending Standards: Banks are tightening standards for credit cards, auto loans, and home equity lines of credit, reducing access to capital for businesses and consumers.
- Increased Provisions: Banks are setting aside reserves to cover potential losses, which could impact earnings. However, some, like Citigroup and Wells Fargo, have reduced provisions, signaling optimism for a trend reversal.
- Economic Slowdown: Rising delinquencies may indicate broader economic challenges, particularly in the commercial sector, which could dampen growth.
- Branch Closures: To offset losses, banks like JPMorgan Chase, Bank of America, and Wells Fargo closed 113 branches between Thanksgiving 2024 and January 11, 2025, reflecting cost-cutting measures.
Comparison to Previous Years
The $11.8582 billion in delinquent loans in Q4 2024 follows a trend of rising bad debt:
- In Q3 2024, JPMorgan Chase, Bank of America, Wells Fargo, and Citigroup recorded $6.9 billion in net charge-offs, driven by credit card delinquencies.
- In Q2 2024, JPMorgan Chase, Wells Fargo, and Bank of America reported $5 billion in net charge-offs, with credit card and commercial real estate loans as key drivers.
- In Q4 2023, non-performing loans at these banks reached $24.4 billion, a $6 billion increase year-over-year, indicating a steady climb in troubled loans.
The 2024 figures reflect a continuation of this trend, exacerbated by economic pressures and a shift in borrower behavior.
What’s Next for Delinquent Loans?
Looking ahead, several factors will shape the trajectory of delinquent loans at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs:
- Interest Rate Policies: Potential Federal Reserve rate cuts in 2025 could ease borrowing costs, reducing delinquency rates. However, analysts warn that rates may remain elevated, prolonging stress.
- Economic Recovery: A resilient U.S. economy, with low unemployment and healthy consumer spending, could mitigate further increases in delinquencies.
- Bank Strategies: Banks are diversifying revenue streams, with JPMorgan Chase, Bank of America, and Goldman Sachs expecting a 7% rise in investment banking revenues in 2025, offsetting loan losses.
- Consumer Behavior: As credit card debt hits a record $1.21 trillion, banks may face continued pressure from consumer defaults unless spending stabilizes.
How to Protect Yourself from Delinquent Loans
For businesses and individuals, avoiding delinquent loans requires proactive steps:
- Monitor Cash Flow: Ensure sufficient liquidity to meet loan obligations, especially in a high-interest-rate environment.
- Negotiate Terms: Work with banks like JPMorgan Chase or Bank of America to refinance or restructure loans before payments become overdue.
- Diversify Financing: Explore alternative funding sources, such as private lenders or government programs, to reduce reliance on traditional bank loans.
- Stay Informed: Keep abreast of economic trends and bank policies that may impact loan terms.
Wrapping Up
The $11.8582 billion in delinquent loans at JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Goldman Sachs in Q4 2024 highlights a growing challenge in the U.S. banking sector.
Driven by high interest rates, economic uncertainty, and commercial sector stress, this surge in sour debt underscores the need for vigilant financial management.
While these banks remain profitable, the rising delinquency ratio and tightening lending standards signal caution for the future.
By understanding the causes and implications of this crisis, businesses and consumers can better navigate the evolving financial landscape.
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