Loan loss reserves will be ‘a drag on overall bank earnings,’ JPM strategist says

U.S. banks are poised for another lackluster earnings season as market turmoil dries up dealmaking activity, but lower investment banking revenues aren’t the only culprit of this year’s shrinking profits across the industry.

The country’s six largest banks are estimated to have allotted roughly $4.6 billion last quarter to cover potentially sour loans — that is, funds set aside to allow for uncollected loan payments as expectations of an economic downturn grow.

“We do anticipate another quarter of a buildup in loan loss provisions,” JPMorgan Global Market Strategist Jordan Jackson told Yahoo Finance Live on Wednesday. “This will be the sixth consecutive quarter banks have decided to build up those loan loss reserves, and that’s going to act as a drag on overall bank earnings.”

This marks a sharp reversal from last year, when bank balance sheets benefited from the release of COVID-era loss allowances, the reserves financial institutions accumulated at the start of the…

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This article was written by and originally published on finance.yahoo.com