Big U.S. Banks Are Preparing For An Impending Recession

Earnings announcements from Citigroup
C
, JP Morgan, PNC, and Wells Fargo
WFC
on Friday made many stock investors jubilant. It is important to note that earnings are a lagging indicator; they tell you how a bank has performed. The indicator that is much more helpful to decipher where banks’ financial health might be headed is banks’ provision for credit losses. Provisions for credit losses normally include banks’ provisions for credit losses for loans, debt securities, and interest-earning deposits with banks. managers have all increased credit provisions in key areas of their loan and bond portfolios. This is prudent risk management. These risk managers are preparing for a potential recession at worst, or a softening of the economy at best.

Recession Signals