It's clear that the coronavirus pandemic has triggered a dizzying economic collapse; how long it lasts and how much damage it leaves behind remain uncertain.

Those are key variables in determining whether a potential wave of missed borrower payments will convert into massive charge-offs for banks in the coming months, which could jeopardize dividends and even create the need for additional capital. Analysts and investors will be watching first-quarter earnings reports closely for information on how much money banks are setting aside for credit losses and early loan forbearance figures to gain insight into how the downturn might play out.

Although banks do not have to record coronavirus-related breaks they give to borrowers as delinquencies or troubled debt restructurings, analysts widely expect sharp increases in credit loss expenses. Front-loaded provisions required under new accounting rules could combine with revenues compressed by low interest rates to hammer first-quarter results, and some analysts are projecting losses at large banks for the full year.

"We expect very large provisions this quarter," especially with the current expected credit loss standard, D.A. Davidson analyst David Konrad said in an interview. Markets will scrutinize how banks determine reserve levels, and which asset classes they are seeking to "ring fence" with large allowances.

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Because of CECL, which requires that banks create reserves for lifetime loan losses based on macroeconomic outlooks that have deteriorated sharply, Konrad expects the largest provisions will be made in the first quarter, although there is a great deal of uncertainty. If a bank assumes 12% unemployment, and the actual figure is higher, "there will be another reserve build," Konrad observed.

The uncertainty over the timing and extent of credit losses is evident in the widening range of analyst estimates for first-quarter EPS. On the high end, estimates have not moved appreciably since before the Federal Reserve's emergency rate cut on March 3, an opening salvo in the fight to cushion the economy as the pandemic threat came into focus. But for JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo & Co., the lowest estimates were 30% to 73% below the highest forecasts as of April 8, according to S&P Global Market Intelligence data.

On the bearish side, Instinet analysts forecast negative EPS for 2020 at Fifth Third Bancorp, Huntington Bancshares Inc., KeyCorp and Regions Financial Corp. among eight banks with more than $100 billion in assets in their coverage universe, driven primarily by credit expenses. They also forecast that tighter underwriting would lead loan growth to slow or turn negative despite a recent surge in corporate borrowing against credit lines.

The Instinet projections reflect a base case where unemployment peaks at 10.4% in the second quarter, and retreats to 8.5% by the fourth quarter. Some banks may need to cut dividends, Instinet warned in an April 7 report.

Credit Suisse analysts forecast in an April 6 note that front-loaded CECL provisioning could drive first-quarter losses at consumer-focused financial institutions including Discover Financial Services and Capital One Financial Corp. But the analysts said that the surge in unemployment is likely to be short, and offset by government relief efforts and loan forbearance. They modeled losses similar to the two relatively mild recessions over the past three decades, and predicted that most of the companies would be profitable over a two-quarter period.

Keefe Bruyette & Woods analysts slashed their estimates for 2020 EPS at JPMorgan, BofA, Citi and Wells Fargo by 55% or more in a March 31 note, and forecast that Citi would post a loss in the second quarter of 2020, when they expect bank credit loss provisions to peak. The revisions overall were primarily driven by higher anticipated credit losses, reflecting worse projections for unemployment and other economic conditions.

The analysts forecast that JPMorgan would have to charge off nearly 5.5% of its roughly $1 trillion of loans from 2020 through 2022, compared with about 3.5% at Wells Fargo, which has a smaller credit card business.

"We believe that business disruption following COVID-19 will be longer-lasting and government programs currently announced will be less effective than anticipated," the KBW analysts said.

Despite expectations for a jump in credit costs, even analysts with relatively bearish outlooks find value in some banks after a deep selloff in trading prices.

The KBW analysts said they remain wary about bank stocks given uncertainties about the economic outlook and the expectation that sentiment will remain poor until provisions peak. But even though they slashed EPS projections for JPMorgan, they raised their rating on the company to "outperform" from "market perform," saying it should be able to use its "balance sheet to gain market share and come out of the recession stronger."

Konrad expects the recovery will be protracted, "even if we do reopen the economy sometime this summer."

"Some businesses will be lost," he said. "Not everyone will regain employment."

Still, he argued that banks have strong underlying earnings power, and under a scenario involving two quarters of "very high unemployment" followed by an improvement, large banks can maintain current dividend levels.

"We are going to see a big hit to returns this year," he said. But "overall we're still pretty constructive" on the sector.