As bank earnings come out, here are the red flags to watch out for this season

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It's easy to get lost in the minutiae of individual bank reporting. Try keeping your eye on the big picture. Here's what to watch.

Financials began reporting Friday, and the spread in the earnings trend is unusually stark. FactSet is reporting that the financials sector is expected to see a very modest increase in earnings of 0.7% for the first quarter year-over-year, but there is an unusually wide spread in earnings expectations among industries in the sector.

Zero interest rates during the Covid pandemic created a lot of borrowing, and it shouldn't be a surprise if credit losses pick up. There is anticipation of more builds for reserves, particularly for commercial real estate, but also possibly for credit cards. Still, JPMorgan noted lower provisions for losses than anticipated, despite an uptick in net charge-offs in consumer banking. Wells Fargo also reported a lower level of provisions. The commercial real estate problem is the main issue.

 

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