The big US banks are preparing for an economic downturn.
(Photo: Reuters)
$8.6 billion is a lot of money. The US financial giant JP Morgan earned this sum in the second quarter of this year. The bosses of the major German banks would jump for joy if they came even close to this mark for the entire year. But for JP Morgan boss Jamie Dimon, the numbers are likely to be a disappointment because quarterly profit was 28 percent higher a year ago.
The main reason for the low profit is significantly higher provisions for impending loan defaults. That the largest US bank is bracing itself for tougher times bodes badly for the entire global economy.
>>Read here: The euro slips to par with the US dollar – that brings new risks
Banks are a mirror of the economy, and conversely, the institutes can also serve as early indicators of impending economic crises. The drastic price losses of Deutsche Bank and Commerzbank since the outbreak of the Ukraine war serve as evidence for this thesis. Unlike during the financial crisis, this time it is not home-grown problems that are troubling banks, but a toxic cocktail of macroeconomic risks: from high inflation to geopolitical crises to dwindling consumer confidence.
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In Europe, it is above all the fear of an energy and economic crisis that scares investors and causes bank stocks to collapse. In the USA, the chain of effects is somewhat more complex. Inflation getting out of control and the very robust labor market at the same time are likely to force the US Federal Reserve to tighten its monetary policy again. The more and more often the Fed raises interest rates, the greater the risk that it will stall the economy and the world’s most important economy will slip into recession.
In the end, developments in Europe and in the US are coming to the same conclusion – the outlook for the global economy is looking rather bleak.
More: Prices rise by 9.1 percent in the USA – inflation becomes a political problem