There are some clear trends to be observed in the results of banks ranging from the trillion-dollar Citigroup to pint-sized regional banks such as BankAtlantic Bancorp
Coming back strong
While the U.S. economy is still building a slow sense of momentum, American banks, with some clear-cut encouraging trends, already seem to be on the right track. And the most apparent one has been a decline in provisions for loan losses (PLL).
As I observed in my study of the banks' recent earnings, a whole bunch of banks have experienced a significant improvement in their credit portfolios, which subsequently led to an improvement in their first-quarter earnings. Allowance for loan loss has shown an improving trend in the last couple of years but gained impetus in this quarter.
Big banks have led the way in this trend. Citigroup's provision for loan losses has been declining steadily over the last few quarters. It declined to $2.9 billion this quarter, compared with $8.4 billion in the first quarter of 2010 and $4.6 billion in the preceding quarter -- significant improvements in credit quality across consumer and commercial portfolios.
Similarly, Bank of America
The regional banks
The larger trend has not been restricted to big banks. Apart from improvement in their asset and credit quality, regional banks such as KeyCorp and BankAtlantic Bancorp also experienced lower credit costs. Even regional banks incurring net losses in the quarter also managed to join the group. Flagstar Bancorp and Hudson City Bancorp
Not just America
Interestingly, it wasn't only American financials that have benefited from a cutback in PLL. Declining provisions for credit losses and a goodwill impairment charge last year enabled Canadian banks such as Royal Bank of Canada
The Foolish bottom line
An upsetting trend observed during the quarter was the bleakish domestic loan growth, and this may become a bottleneck in the lending business in the United States. But on the whole, things are improving for the banking industry, which was battered and bruised during the economic fiasco. I see this trend continuing and improving in the forthcoming quarters, complemented by the gradually reviving larger economy. Fools may wish to consider investing in well-run banks.
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