Banks That Shun Risky Borrowers Offer Rosy View of U.S. Consumer

(Bloomberg) -- With most U.S. households spending more and paying their bills on time, their creditors are feeling more confident than ever. To hear the CEOs of the nation’s largest banks tell it this week, rarely has the American consumer been in better shape.

But look deeper and it’s clear that view of the broad U.S. economy has its limits. They’re basing their assessments on clients lucky enough to bank with eight of the biggest lenders, with a combined $11 trillion in assets.

Roughly a decade after being burned by the most punishing financial crisis since the onset of the Great Depression, it’s increasingly clear that the nation’s largest lenders are targeting a narrower slice of consumers: The wealthy and those with excellent credit.

At JPMorgan Chase & Co., which on Tuesday reported the most profitable year of any bank in American history, executives anticipate a paltry 1.76% loss rate on their $504 billion of household loans, filings show. Five years ago, the bank expected to lose almost $2 billion more on a loan portfolio that was $78 billion smaller. The rate of severely delinquent consumer loans at Wells Fargo & Co. has fallen for at least 22 consecutive quarters, while at Bank of America Corp. soured household debt has dropped 23 quarters in a row.

In many ways, big banks’ flawless consumer loan books represent the underlying strength of an expanding U.S. economy, where wages are rising and nearly everyone who wants a job already has one. Bankers’ confidence that their loans will be repaid also reflects optimism about this year, when expectations are for a tight labor market, rising wages and continued gains in consumer spending.

“In the history of banking, we probably have the most pristine amount of credit,” Richard...

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