On Tuesday, JPMorgan kicked off the banks’ second-quarter earnings season, reporting net income of $11.9 billion boosted by a $2.3 billion net credit benefit from reserve releases.
We will soon see if lenders continue to write back the big provisions they took against bad debts at the outset of the pandemic lockdowns in 2020 and count these releases as profits.
The Federal Reserve has already allowed US banks to start paying dividends and buying back shares again. The ECB has signalled it will likely follow suit in September.
Something doesn’t add up here.
In a speech to the University of Naples at the start of July, Andrea Enria, chair of the supervisory board of the ECB, tip-toed up to it.
“We have just seen the sharpest GDP decline in peacetime for the European economy, but extraordinary policy support has meant bankruptcies and non-performing loans (NPLs) have barely reflected this.”
Loan moratoria are now rolling off; furlough schemes are coming to an end; governments are scaling back guaranteed loan programmes.
Optimists, including at the credit rating agencies, argue that support is only being wound down because economies are reopening and recovering.
