Most large U.S. banks boosted their provisions for credit losses in the fourth quarter of 2022 amid mounting recession fears and persisting loan growth.
Out of the 19 banks with over $50 billion in total assets that reported fourth-quarter earnings 2022 through Jan. 20, 14 increased provisions sequentially, according to S&P Global Market Intelligence data. All 19 banks raised provisions compared to the 2021 fourth quarter when majority of them booked negative provisions due to a strong economy and near-pristine credit quality.
Big banks' provisions
JPMorgan Chase & Co. logged the biggest provision and the largest increase, among the banks in the analysis, at $2.29 billion, up $751.0 million from the previous quarter and $3.58 billion from the 2021 fourth quarter. The provision included a net reserve build of $1.4 billion, which was due to macroeconomic outlook updates and loan growth in card services, partially counterbalanced by a decrease in pandemic-related uncertainty.
The allowance "can capture something more than a very mild soft landing," CFO Jeremy Barnum said during JPMorgan's 2022 fourth-quarter earnings call. "But of course, it wouldn't be appropriate to reflect a full-blown hard landing in our current numbers since the probability of that is clearly well below 100%."
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The rest of the Big Four U.S. banks — Bank of America Corp., Citigroup Inc. and Wells Fargo & Co. — also raised provisions both sequentially and yearly.
Bank of America's provision of $1.1 billion included higher charge-offs and a reserve build of about $400 million, reflecting "good credit card and other loan growth combined with the reserve-setting scenario," Chairman and CEO Brian Moynihan said on the company's earnings call. "Our baseline scenario contemplates a mild recession."
Citigroup recorded a provision of $1.83 billion and the largest net charge-offs in the group at $1.18 billion. Wells Fargo's provision was $957.0 million.
Citizens Financial Group Inc.'s provision rose $9.0 million quarter over quarter and $157.0 million year over year to $132.0 million.
"The current reserve level contemplates a moderate recession and incorporates expectations of lower asset prices and the risk of added stress on certain portfolios, including those subject to higher risk from inflation, supply chain issues, higher interest rates and return-to-office trends," Vice Chairman and CFO John Woods said on the company's earnings call.
Among the banks on the $50 billion-plus list, only five banks trimmed provisions sequentially. Those banks are Huntington Bancshares Inc., Regions Financial Corp., M&T Bank Corp., First Horizon Corp. and First Republic Bank.
Provisions at $10B-$50B banks
Of the 17 banks with total assets between $10 billion and $50 billion that announced fourth-quarter 2022 earnings through Jan. 19, 15 recorded positive provisions.
BankUnited Inc. raised its loan loss reserves as it was more "pessimistic" and "cautious" about the environment, President and CEO Rajinder Singh said on the company's earnings call. The company logged a provision of $39.6 million, up $35.9 million from the previous quarter and $39.4 million from the prior-year period.
