Citigroup, Other Big Banks Gain from Consumer Credit Quality

More U.S. consumers are paying the mortgages and credit cards on time, and the big banks are benefiting by freeing up loan-loss reserves.
Citigroup today become the latest major U.S. bank to meet or beat Wall Street expectations for the second-quarter, joining JPMorgan Chase and Wells Fargo in gaining bottom-line assistance from improving consumer credit performance.
Fewer Americans are becoming delinquent on their loans, meaning that fewer are crossing the key threshold of being late by 90 days or more on their payments. That improving credit quality – as banking jargon calls it –has been a strong trend for several quarters.
Citigroup, the nation’s third largest bank, reported earnings of $2.9 billion for the second quarter, topping Wall Street expectations despite a revenue drop of 10 percent.
Citigroup attributed the drop in earnings to the ongoing winding down of Citi Holdings, created to hold the bank’s “troubled assets.” But Citi’s expenses also declined by 6 percent from the previous year’s quarter to $12.1 billion.
Citi’s loan loss reserves for the second quarter amounted to $984 Million, down 50 from the prior year period.
Citigroup’s total allowance for loan losses was $27.6 billion at quarter end, or 4.3 percent of total loans, compared to $34.4 billion, or 5.4 percent, in the prior year period.
In its second-quarter report last week, JPMorgan Chase said it reduced loan loss reserves by $2.1 billion, mostly for the mortgage and credit card portfolios.
“These reductions in reserves are based on the same methodologies we have used in the past – the good news is that these reductions reflected meaningful improvements in delinquencies and estimated losses in these portfolios,” reported Chase, the nation’s largest bank by assets.
Wells Fargo, the top U.S. mortgage lender, reported continued improvement in the second quarter, “with reductions in net losses, nonperforming assets, nonaccrual loans, and loans 90 days or more past due and still accruing.”
“Absent significant deterioration in the economy, we expect continued but more modest improvement for the remainder of the year, and we continue to expect future reserve releases in 2012,” said Wells Fargo Chief Risk Officer Mike Loughlin.
The loan loss reserve release for Wells Fargo in the second quarter was $400 million, equal to the release in the first quarter of 2012.

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