Over the first three quarters of 2020, loan loss reserves were a significant drag on banks’ earnings. However, with negative provisioning accelerating during Q4 2020, the top banks in the US received a boost in earnings.
According to the research data analyzed and published by Finaria, four of the largest US banks reported an aggregate loan provision deficit of $6.74 billion in Q4 2020. The four released a cumulative $5.985 billion from their loan loss reserves in that period.
Reserve releases began in Q3 2020. Based on an SP Global report, the period saw a 77% decline in overall loan loss provisioning by US banks. They set aside $14.25 billion as reserves in Q3 2020, down from nearly $60 billion in Q2 2020.
JP Morgan Equities Trading Revenue Soars by 32% in Q4 2020
In Q4 2020, JP Morgan released $2.9 billion from its loan loss reserves and Citigroup $1.5 billion. Bank of America released $828 million while Wells Fargo released $757 million.
Thanks to its reserve release, JP Morgan got a $1.9 billion boost in earnings during Q4 2020, after $1 billion charge-offs. Its earnings per share (EPS) for the quarter was $3.79 against an expected $2.62 per Refinitiv estimates. It had a record trading quarter, posting a 32% uptick in equities trading revenue to reach $1.99 billion.
On the other hand, Citigroup’s earnings fell by 7% to $4.63 billion or $2.08 per share, beating the estimated $1.34 per share. Bank of America posted a profit decline of 28% to $5.47 billion or 59 cents per share. For Wells Fargo, net interest income totaled $9.275 billion against an expected 9.34 billion per FactSet analysts.