American Express reported another strong quarter of earnings as total revenues, net of interest expense and provisions for losses increased 4% year-on-year, for the three months ending March.
FORBES: Consumer Spending And Global Push Lift American Express
An important postscript to the M2M saga is that having had to over-reserve for losses not likely to occur, many banks are now able to reduce provisions for losses, boosting their profits.
There is a 10% upside to our price estimate for Capital One if the provisions for losses declined to 5% by 2012 due to falling delinquencies and stricter lending requirement which as a result of regulatory changes.
Provisions for losses increased dramatically from 7.8% in 2007 to 16% in 2008 because of the credit crisis but recovered back to 10.6% during 2009 and 7.5% in 2010 as the banks have become more conservative in their lending standards and are avoiding making loans where the risks of default are high.
Moreover, industry profitability improved during the quarter, largely attributable to lower provisions for loan losses and reduced expenses for goodwill impairment.
So far this year Santander has set aside 3.5bn euros for provisions for property losses - a problem facing all Spanish banks.
Capital One reported better than expected third quarter results last Thursday, driven by lower provisions for loan losses and increased interest income.
However, in Q3 2011, it will be hard for the company to beat market expectations as the provisions for loan losses slowly begin to climb.
FORBES: Earnings Tomorrow Could Spark Capital One Run To $57
As home prices have stabilised, unemployment has gradually declined and troubled loans have been restructured or written off, the two have set aside ever smaller provisions for loan losses.
In the first two quarters of this year, the company reported better than expected results primarily because of higher revenues and lower provisions for loan losses resulting from an improved credit performance.
FORBES: Earnings Tomorrow Could Spark Capital One Run To $57
First Manhattan, a consultancy, reckons that one-third of the improvement in big American banks' earnings since 1993 comes from three non-recurring factors: lower deposit-insurance premiums, smaller provisions for loan losses and a wider gap between market interest rates and the rates banks pay depositors.
However the withdrawal of government incentive for permanent loan modifications could lead to higher foreclosure in the future as well as higher provisions for credit losses as banks find less of an incentive to modify troubled home loans while borrowers fail to repay loans on existing terms.
FORBES: Wells Fargo To Feel More Mortgage Pain, Stock Still Goes To $32
Third, (actually this is the second-and-a-half reason, because I am unclear about how the Spanish government will address it), the independent assessors may conclude that the banks should make greater provisions for possible losses on their loans to the Spanish government - because the price of Spanish government bonds has deteriorated since the IMF determined the haircut or discount that should apply to these bonds.
The rise, an increase of 95% on the same quarter in 2012, came as HSBC reported a big fall in losses from bad debts and provisions for other risks.
And the first-half losses at some banks were caused by stiff provisions for bad loans.
The key trends he'll be looking for are loan-loss provisions, not to mention loan losses themselves, which he expects to be lower, but still at very elevated levels.
Recent regulatory changes have prompted a significant decline in loss provisions, meaning that banks will not need to set aside as high levels of reserves for potential losses and will have more capital available for other uses.
应用推荐