Bank earnings to shed the first light on how -2-

A bank's provision for loan loss reserves (LLR) is its quarterly addition to or subtraction from reserves. Specific reserves are set aside for commercial loans as soon as there is any hint of delinquency or an inability to renew maturing loans. For consumer and mortgage loans, banks add to reserves based on anticipated charge-off rates.

For a credit cycle in the banking industry, it is useful to look at quarterly changes for a one-year period. So here are estimated provisions for LLR for the third quarter, along with actual numbers for the previous four quarters. Again, the numbers are in billions:

 
Bank                Est. Q3 provision for LLR  Q2 provision  Q1 provision  Q4, 2025 provision  Q3, 2025 provision 
JPMorgan Chase                         $2,790        $2,515        $2,507              $4,655              $3,403 
Bank of America                        $1,499        $1,366        $1,337              $1,308              $1,295 
Citigroup                              $2,624        $2,603        $2,605              $2,200              $2,254 
Wells Fargo                            $1,148          $914        $1,135              $1,040                $681 
Goldman Sachs                            $407          $102          $315             -$2,123                $339 
Morgan Stanley                            $88           $98           $98                 $18                  $0 
                                                                                                  Source: FactSet 

For JPMorgan Chase, the estimated Q3 provision for LLR is higher than it was the previous two quarters, but lower than it was during the third quarter of last year. The others are expected to show year-over-year increases in provisions.

The stocks

Here is a summary of year-to-date returns, dividend yields and price ratios for the largest six U.S. banks' stocks, leaving them in the same order as the tables above.

 
Bank                2026 total return  Forward P/E  Forward P/E at end of 2025  Price/ tangible book value  Dividend Yield 
JPMorgan Chase                   5.3%         13.2                        15.3                         3.0           2.39% 
Bank of America                  0.4%         10.7                        12.6                         1.9           2.90% 
Citigroup                       12.8%         10.4                        11.6                         1.3           3.93% 
Wells Fargo                     -8.9%         10.6                        13.2                         1.8           2.88% 
Goldman Sachs                    3.3%         12.7                        15.8                         2.6           2.91% 
Morgan Stanley                   8.9%         14.1                        16.8                         3.6           4.05% 
                                                                                                           Source: FactSet 

Click on the tickers for more about each bank.

The forward P/E ratios are the most recent closing prices divided by consensus 12-month earnings-per-share estimates among analysts polled by FactSet. They compare to weighted forward P/E of 10.9 for KBWB and 19.3 for the S&P 500.

The forward P/E have declined for all six stocks this year, because rolling consensus 12-month EPS estimates have increased more rapidly than the share prices.

The table also includes ratios of price to tangible book value, which is book value net of intangible assets, such as goodwill and loan servicing rights.

Citi remains the cheapest of the six, with forward P/E of 10.4 and price/TBV of 1.3.

Sykes of Gabelli continues to favor Wells Fargo as an investment because of the ongoing remediation story after the Federal Reserve lifted its regulatory cap on the bank's asset growth last year. That cap had been placed as part of a series of regulatory actions in 2018.

Wells Fargo trades at a price/TBV ratio of 1.8. Sykes believes the stock should be trading closer to twice TBV, as the bank moves closer to its long-term target of a return on tangible common equity (ROTCE) of 17% to 18%.

During the second quarter, when its revenue spiked from the high level of IPO activity, Wells Fargo's ROTCE was 17.7%. But it was 14.5% for each of the preceding two quarters, and analysts polled by LSEG expect the bank's third-quarter ROTCE to come in at 15.9%.

Stucky of Northwest Mutual said he had "heard some sentiment building [with] a bit of money rotating from Bank of America for Wells Fargo's idiosyncratic opportunities, but at this point in the cycle, I am emphasizing quality."

"For me it does not get higher quality, for the opportunity to invest in the changing technological background, than JPMorgan Chase," he said.

When discussing JPM, Stucky said: "They are not managing to be the most efficient, but they have been outgrowing the industry by directing capital to where it will benefit the most in the longer run."

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10-11-26 0801ET