Rich Americans Keep Borrowing Despite Rising Rates

Bank of America and Morgan Stanley registered significant growth in loans to wealth-management customers in the first half of the year

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The Wall Street Journal reported that the wealth-management units at Morgan Stanley and Bank of America Corp. registered double-digit loan growth in the second quarter. Mortgages and loans for wealthy clients were backed by assets like stock-and-bond portfolios. 

Morgan Stanley’s wealth unit posted a 30% increase in mortgages compared to a year earlier. The mortgage volume grew to $50 billion, while securities-backed and other loans went up by 23% to $93 billion. At Bank of America, loans to wealth-management customers rose 12% to $222 billion, as opposed to a 4% increase in the bank’s consumer division.

Such a robust growth signifies that a wealthier cohort of US consumers isn’t seeking a safety net in front of the looming recession. During the earnings calls earlier this month, the leading American banks said their customers are spending at a healthy level and keeping up with their debt payments, without emptying their main bank accounts. 

Moreover, the wealthy resort to their securities-backed credit lines to snatch promising assets. Volatility and market decline may be a good chance to make money. Despite the economic turbulence, loan rates are still far cheaper than credit card interest rates. Besides, the wealthiest clients can pledge more assets as collateral and get even lower rates. 

Some of the borrowers invested their extra savings into brokerage accounts. Others used loans to finance the purchase of new properties. Finally, another reason wealthy clients were borrowing against their portfolios was to pay their tax bills.  

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