Banks remain reluctant to release reserves
Sometimes the headlines at the start of the banking profit season can be misleading.
JPMorgan Chase grabbed attention last month when he said he freed nearly 9% of loan loss reserves between September 30 and December 31, and that some other big banks reduced the stocks they had built up since the start of the pandemic recession . The cuts may have been a sign of optimism about the economy.
However, US Bancorp and Truist Financial kept their reserves stable, and they weren’t the only cautious ones. Total loan loss provisions at 13 of the largest U.S. banks fell a total of 4.5% in the fourth quarter from the peak of accumulation six months earlier, according to documents filed by the companies. Some analysts expected more.
“Some banks are holding back,” said Scott Siefers, managing director and senior research analyst at Piper Sandler, citing the uneven pace of economic recovery and the rollout of COVID-19 vaccines. Many banks don’t expect anything back to normal until the second half of the year, he said.
Reserves held specifically for consumer debt, such as auto loans and credit cards, have remained largely intact across the industry. Speeding up vaccinations is seen as key to getting America’s 10.7 million unemployed back to work and allaying the concerns of an estimated 7.3 million no longer looking for jobs, according to the latest data from the Bureau of Labor Statistics.
Delays in getting shots dampened the earlier and more optimistic outlook for the 2021 economy.
“One of the keys is that we are seeing a resumption of the vaccine rollout,” Bryan Jordan, CEO of First Horizon, with $ 84.2 billion in assets, said on a Jan. 22 call with analysts. . “I would say that to date this has been woefully inadequate, and it needs to accelerate for us to see a much stronger mid-year comeback.”
Memphis bank, Tenn., Lowered its fourth quarter loan loss reserve 3% from the third quarter to about $ 963 million.
Minneapolis-based US Bancorp is taking a close look at public health data and the level of state and local limits on business activities and public gatherings, CFO Terry Dolan said on a Jan. 20 call with analysts .
“We end up looking at the uncertainties that exist or at least existed at the end of the year, and what we want to be able to see is a reversal of some of the restrictions and the reversal associated with some of the COVID cases,” Dolan said.
US Bancorp raised eyebrows when it chose to maintain its loan loss reserve in the fourth quarter, said Mike Mayo, a banking analyst in the chief executive officer of Wells Fargo Securities.
“The industry as a whole has refrained from the degree of release from reserves in the fourth quarter,” Mayo said. Releases “could certainly increase” if the vaccine distribution problems are resolved and the outlook for consumers improves, he said.
But the timeline for returning stocks to pre-COVID levels is likely to be pushed back, Piper Sandler’s Siefers said.
Vaccinations have been spotty in the United States as states have struggled to dispense a small amount of doses. More than 13% of Alaskans received at least the first dose of the vaccine as of Feb. 1, more than double the percentage in Idaho, according to the University of Oxford tracking data.
There are some signs of optimism as Goldman Sachs researchers told customers in a Feb. 2 note that 50% of the U.S. population is on track to be vaccinated in May.
The race for more shots is vital as the recovery gathers pace and when banks can release more reserves, according to a December research note from investment giant Vanguard, one of the most large holders of US bank stocks.
“In our most optimistic scenarios for vaccine effectiveness, much of the economic loss resulting from the pandemic could be recouped over the next year,” Vanguard researchers said in the report, “while a persistent immunity gap – perhaps the result of a vaccine or a lengthened distribution cycle – leaves economies only marginal progress over current levels. “