JPMorgan Chase & Co. (JPM) - Get JPMorgan Chase & Co. (JPM) Report , Bank of America Corp. (BAC) - Get Bank of America Corp Report and other U.S. banks are grappling with the potential for billions of dollars in losses from Hurricanes Harvey and Irma as borrowers in affected areas struggle to repay loans.
Eight banks could see $156 billion of loans affected by the pair of storms over the next 12 months, Goldman Sachs analysts wrote Monday in a report. Losses on Harvey-affected lending could range from $600 million to $1.1 billion, and Irma could inflict another $1.2 billion to $1.9 billion.
The bad debt would add to the damage for the financial industry, with insurers like Travelers Cos. (TRV) - Get Travelers Companies, Inc. Report and XL Group Ltd. (XL) - Get XL FLEET CORP. Report already facing more than $100 billion of combined losses from Harvey and Irma. Harvey brought catastrophic flooding in the Houston area, while Irma buzzed across the Florida Keys before battering the state's Gulf Coast.
JPMorgan, Bank of America, Citigroup Inc. (C) - Get Citigroup Inc. Report and Wells Fargo & Co. (WFC) - Get Wells Fargo & Company Report could each see earnings per share take a hit of 1% to 2%, the Goldman Sachs analysts estimated. Zions Bancorp., a big regional lender based in Salt Lake City, face EPS losses of 11% to 19%, while Atlanta-based SunTrust Banks Inc. (STI) - Get SunTrust Banks, Inc. Report and Dallas-based Comerica Inc. (CMA) - Get Comerica Incorporated Report could each see a hit of 6% to 10%.
The hit to the broader economy is also likely to be substantial. Harvey may end up being the most expensive natural disaster in history, costing as much as $108 billion, according to Bank of America.
It's likely to drag third-quarter economic growth down by 40 basis points to 2.5% and pushed jobless claims up 26% last week to 298,000 -- the highest since April 2015, global economist Ethan Harris said in a note to clients.
Harvey, and possibly Irma, will make interpreting economic data in the near future a thornier task, he noted. "In the short-term, the hurricanes serve as a drag but ultimately history suggests the rebuilding efforts underpin growth," Harris wrote.
That may not happen until early next year, however. The fourth quarter is likely to see scant evidence of a rebound from rebuilding, Harris said, as "we have found there to be considerable delays in prior hurricanes."
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