Loan-loss provisions

The firm set aside a record $9.5 billion for credit losses, about $4 billion more than analysts had expected, as it braces for a wave of coronavirus-related defaults.

While elevated loan-loss provisions are expected to eat into all banks’ earnings, midsize banks could suffer more than their big-bank rivals because they have fewer revenue drivers. Meanwhile, investors will be watching closely for any signs of dividend cuts stemming from the Federal Reserve’s caps on payouts.

In one of the first comprehensive analyses of how the banking industry was affected by the onset of the coronavirus pandemic, the agency said quarterly income fell by nearly 70% from a year earlier.

Lenders are cautioning not only that second-quarter provisions might exceed the spike seen earlier this year, but also that credit costs could be elevated into 2021 if the economic slowdown drags on or fears of a second coronavirus wave are borne out.

The economic contraction caused by the coronavirus pandemic has been worse than the Wall Street firm had modeled two months ago, its president John Waldron said Wednesday.