“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.”
“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.”