The Financials sector has been a sector in focus for the market during the past week, as 6 of the 12 companies in the S&P 500 that reported earnings for Q2 during the week were in this sector. Half of these six companies were in the Banks industry: Citigroup, JPMorgan Chase, and Wells Fargo. This industry is reporting the highest year-over-year earnings growth of all 5 industries in the Financials sector at 25%
However, it is interesting to note that the Banks industry is also reporting higher provisions for loan losses in Q2 2023 relative to Q2 2022. Provisions for loan losses have no impact on top-line growth, but do have an impact on bottom-line growth, as they are treated like an expense on a company’s income statement.
In the first half of 2020, banks dramatically increased their provisions for loan losses in conjunction with the economic lockdowns caused by COVID-19. In the second half of 2020 and early 2021, banks then substantially reduced their provisions for loan losses, with restrictions easing and economic conditions improving during the year. Starting in early 2021, banks have been steadily increasing these provisions again.
For example, JPMorgan Chase reported $2.9 billion in provisions for loan losses in Q2 2023, compared to $1.1 billion in provisions for loan losses in Q2 2022. This reflects an increase of more than 150%.
FactSet Estimates actively tracks this metric for all 15 companies in the Banks industry in the S&P 500. In aggregate, the blended (combines actual results for companies that have reported and estimated results for companies yet to report) provision for loan losses for these 15 banks is $9.9 billion for Q2 2023, compared to $4.9 billion in Q2 2022. This reflects an increase of about 100%. If $9.9 billion is the actual number for the quarter, it will mark the 3rd highest number for the Banks industry is the past 5 years (using current constituents and going back in time).
Due to a technical problem, valuation data and index-level EPS numbers are not available in this week’s Earnings Insight report.
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