OK, technically that’s two questions jammed together, but that’s precisely our point. If you want a glimpse into broader economic trends, one good way to do that is to study how cautious the Wall Street titans are with their lending business.

For starters, we looked at the quarterly provisions for loan losses for Bank of America ($BAC), Citigroup ($C), JP Morgan ($JPM), and Wells Fargo ($WFC) since the start of 2022. See Figure 1, below.

Those numbers fluctuate quite a lot, but the overall trend is clearly upward. That means the banks have been setting aside more money each quarter for loans that might go sour. 

(And for the eagle-eyed among you, that’s not a typo — Wells Fargo did report a negative provision number at the start of 2022. That means Wells adjusted its total provisions downward because its loan portfolio was doing so well.) 

Does that broad upward trend mean Wall Street’s financial picture is getting more gloomy? From Figure 1 alone, that’s hard to say. Yes, the banks are setting aside more money to cover bad loans, but they’re also extending more loans at the same time; we can’t analyze one variable independently from the other.

Loss Provisions Against Revenue

So we dug further into the data. Using our Multi-Company page, we also pulled the banks’ quarterly revenue, and then divided loan-loss provisions into that number. For example, see Figure 2, below, which shows the result for JP Morgan.

Long story short, this chart tells you that for every dollar of revenue JP Morgan brings in the door, it sets aside 7 cents as provisions for loan losses. That set-aside happens right at the start, before JP Morgan spends its revenue on anything else — like, ya know, running the business. 

Let’s also remember that the 7 cents per dollar for possible loan losses is up from only 5 cents per dollar at the start of 2022. In relative terms, that’s an increase of 40 percent. 

So what does that mean? Is JP Morgan making loans to riskier customers, and prudently setting aside more provisions for loan losses? Or are existing customers sputtering, and the bank is prudently planning for the worst? 

Banks as a Whole

We can also widen the lens a bit to look at Wall Street banks as a whole. For example, Figure 3, below, shows loan loss reserves against revenue for 10 large banks, looking at the past three quarters. 

From that perspective, JP Morgan looks more like an outlier; most of the other banks have kept their loan loss provisions relatively steady. Or, for those of you who prefer to compare loss reserves against assets, we humbly offer Figure 4, below. 

Our point is simply that astute analysis of the banking sector is complex. You need to compare multiple variables against each other, ideally over time; and then compare those answers against multiple banks. 

The good news is that Calcbench has that data, so you can get digging quickly and easily. Or if you have a more complicated project and want advice, drop us a line at info@calcbench.com and tell us what’s on your mind!