dChan - Q Origins Project Archive

Biggest U.S. Banks Seen Adding to Reserves for Pain Yet to Come

When it comes to loan losses sparked by the Covid-19 pandemic, U.S. banks aren’t taking any chances.

The nation’s four biggest lenders probably set aside about another $10 billion for bad loans in the third quarter, according to analysts’ estimates compiled by Bloomberg, even though stimulus moves by the government and Federal Reserve have so far staved off a spike in missed payments. While the third quarter’s tally is well below the pace of the first half, it means that the banks will not only have covered the losses they’ve seen since the start of the pandemic, but also added almost $50 billion to reserves for future pain. Investors’ big question will be whether that comes from typical caution, or if the banks are seeing worrying signs as forbearance programs wind down and stimulus efforts get bogged down in a partisan fight.

“There is still an enormous amount of uncertainty about how this will ultimately unfold, particularly for the consumer,” JPMorgan Chief Financial Officer Jennifer Piepszak said last month. But she added that “things are looking better than we would have thought.” As giant lenders including JPMorgan Chase & Co., Bank of America Corp., and Wells Fargo & Co. report third-quarter results this week, analysts expect a slight uptick in net charge-offs as some loans sour. That will still be outstripped by banks’ provisions as they prepare for losses from industries hurt by lockdowns and consumers who are unemployed. Already in the first half, JPMorgan added $6.6 billion to its reserve for credit-card losses, while Wells Fargo boosted its commercial-loan reserve $6 billion. Piepszak said the bank’s provisions are based on economic assumptions that are more severe than what its economists expect to happen, and the company wasn’t predicting a meaningful reserve build or release in the third quarter.

Bank of America Chief Executive Officer Brian Moynihan said last month that reserves and charge-offs would probably be “modest.” And Citigroup CFO Mark Mason said the bank expected additional reserve increases would be “meaningfully lower” than earlier in the year. Banks may be setting aside more than they need for loan losses to take advantage of strong trading revenue and the fact that they can’t return excess capital to shareholders. The Fed this month extended through the rest of the year its unprecedented constraints on dividend payments and share buybacks for the biggest U.S. lenders.

moar

https://www.bloomberg.com/news/articles/2020-10-12/biggest-u-s-banks-seen-adding-to-reserves-for-pain-yet-to-come

and if/when the loss provisions do not equal the amount that an individual bank has set aside they take the remainder (difference between loss disclosed and amount set-aside to cover it) and apply it to balance sheet as revenue-an old, tired game-done this for years.