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Please consider JPMorgan, Citigroup Expect More Credit-Card Users to Fall Behind.

Banks have enjoyed years of declining losses from fewer consumers defaulting on debts. They appear to be preparing for a turn.JPMorgan Chase & Co. and Citigroup Inc. just boosted their reserves for consumer-loan losses by the most in more than four years.

Both lenders set aside money last quarter because they expected write-offs for credit-card lending to climb in periods ahead, with Citigroup saying the increase is coming faster than it had anticipated.

Working-class Americans devoted a growing percentage of their income to paying debts last year, the first increase since 2010 and a shift that’s likely contributing to rising default rates, Moody’s Investors Service said this week.

“We’re seeing a turn in the sense that the abnormally pristine credit environment has clearly reversed,” said Jim Sinegal, an analyst at Morningstar Inc. “I would say it’s more of a normalization,” and not a sign “we’re headed back towards perhaps a recession.”

It All Starts Somewhere

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“The last thing you want to do in any sort of consumer-credit business is take your eye off the ball or get complacent, and so we’re not getting complacent,” Citigroup Chief Financial Officer John Gerspach said on a call with reporters.

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Citigroup’s current delinquency rate of 2.84 percent in its North American branded credit-cards business will probably increase to 2.95 percent in 2018, Gerspach said. It will ultimately rise to between 3 percent and 3.25 percent by 2020, which would be in line with historic norms, he said.

Mish Translation: We are complacent and have understated the risks.

Mike "Mish" Shedlock