Citigroup Chief Financial Officer Mark Mason says the bank is more likely to report loan loss reserve releases than builds as of the fourth quarter, Reuters writes.
Bank executives at the Goldman Sachs Financial Services Conference have made similar comments, fueled by optimism and improved credit trends. The positivity comes, in part, from the news of vaccines on the horizon from companies like Pfizer and Moderna, Reuters writes.
In the fourth quarter, Citi is looking for trade revenues to be in the mid-teens and investment banking fees to sink into the low-double digits.
The process of taking loan losses and reserves has the effect of lowering net income. The reserves can be released back into earnings at a future time if the losses end up better than expected down the road.
The news represents a 180-degree change from earlier in the pandemic.
The initial forecast by banks for the finances during the pandemic was startlingly grim, with millions filing for unemployment benefits in a matter of weeks and the banks putting aside tens of billions of dollars for reserves to cover the loans as they went bad. The cost in April was around $25 billion, and Goldman Sachs CEO David Solomon forecasted a recession that could stretch into 2021.
Goldman and Citigroup both saw their net income halved year-over-year once the reserves practice started.
In July, banks were staring down the barrel of high loan losses due to the economic uncertainty of the pandemic, setting aside $30 billion to help cover the losses. JPMorgan Chase, for instance, set aside $10.47 billion for the prospective losses, a near eightfold surge from the $1.2 billion they’d set aside the previous year.
J.P. Morgan Chairman Jamie Dimon said the huge increase was to shield against the uncertainty that still lingered in the summer, when the forecasts were calling for a brutal winter downturn and viral surge.
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