"The rainy-day funds that U.S. banks have been tapping to boost their earnings could soon begin to dry up, and that doesn't bode well for bank profits.
Many banks have been "releasing" reserves against bad loans since the worst of the crisis passed and the economy began recovering. That money flows to the bottom line, helping some banks boost earnings at a time when lending and trading profits have been soggy.
But with loan-loss cushions now receding toward precrisis levels, some analysts doubt banks can afford to keep up the pace of reserve releases. Lowering reserve releases could increase pressure on profits that are being hit by slow economic growth, low interest rates and tighter rules.
The releases are "masking some horrible operating performance," said Mike Mayo, a banking analyst for Crédit Agricole Securities. "The bottom line is your earnings power is decreasing."
But with loan-loss cushions now receding toward precrisis levels, some analysts doubt banks can afford to keep up the pace of reserve releases. Lowering reserve releases could increase pressure on profits that are being hit by slow economic growth, low interest rates and tighter rules.
The releases are "masking some horrible operating performance," said Mike Mayo, a banking analyst for Crédit Agricole Securities. "The bottom line is your earnings power is decreasing."
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