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The largest UK, Swiss and eurozone lenders are expected to provision at least €23bn for the second quarter as they report earnings in coming days, according to analysts at Citigroup.
That is on top of the €25bn of charges the same group took against potential defaults in the first three months of the year. When added to the $61bn already reserved by the five largest US banks over the first six months, the combined figure from the biggest western lenders could reach $117bn. That would be the highest net addition to reserves since the first half of 2009, in the aftermath of the collapse of Lehman Brothers, according to Citi.
Few economists are projecting rapid “V-shaped” recoveries and more pain is expected when government support schemes wind down in the autumn. Oliver Wyman, the consulting firm, forecasts as much as €800bn of loan losses for European banks over the next three years if there is a second wave of infections.
Investors braced for a rise in European bank loan losses
“It’s going to be another difficult one — several banks have flagged this could be the worst quarter of the year,” said Jon Peace, an analyst at Credit Suisse. He noted that under new accounting rules, banks are required to “front-load” their provisions for likely losses, but added that at the end of the first quarter they were working off assumptions for GDP growth and employment “that were not as bleak as today”.