US bank results to focus on looming loan losses during coronavirus

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How much money will U.S. banks lose on loans because of the coronavirus recession?

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FILE PHOTO: A person wearing a face mask walks along Wall Street after further cases of coronavirus were confirmed in New York City, New York, U.S., March 6, 2020. REUTERS/Andrew KellyAnalysts and investors have been struggling to come up with an answer – or at least a reasonable guess – ahead of quarterly reports from JPMorgan Chase & Co , Bank of America Corp , Wells Fargo & Co , and Citigroup Inc next week.Wall Street estimates have changed dramatically from a month ago.

Those estimates have to be justified to regulators and auditors, and be credible to investors. But they ultimately rely on judgment: a pessimistic management team could decide to take much bigger provisions than optimistic peers at a rival bank, even if they have similar loan books. Goldman Sachs analysts led by Richard Ramsden cut their estimates for big banks for all of 2020 by 40per cent this week, all due to additional loan-loss provisions. Other issues affecting earnings essentially cancel each other out, they said.

At its core, the uncertainty about bank results reflects uncertainty about the coronavirus, but the new accounting standard adds another layer of mystery for banks. Although they have more insight about the financial stress of their borrowers, and therefore more insight about the economy, they do not have a crystal ball about the coronavirus.

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