Q2-2025 earnings season for banks officially started with, what a surprise, JP Morgan, Citigroup, and Wells Fargo all beating Wall Street analysts’ expectations and once again bagging fat profits. Traders, though, aren’t so impressed so far with JPM and Citi trading flat while WFC is down 6% on the day as I write. In the article I published two weeks ago, “2025 FED STRESS TEST REVEALS HOW TODAY’S FED IS COMPLICIT IN HIDING BANKS’ PROBLEMS“, we already observed how today’s Fed is actively helping banks conceal their troubles, and the Q2-2025 numbers just released should not be surprising to anyone.
Let’s start with JP Morgan, which this quarter put aside only 2.85bn USD of provision for credit losses compared to 3.3bn USD last quarter and 3bn USD in Q2-2024. Here is how the bank describes its rationale for yet another limited amount of provisions:
“The provision for credit losses was $2.8 billion. Net charge-offs of $2.4 billion, predominantly in Card Services, were up $179 million. The net reserve build of $439 million, primarily in Wholesale, was driven by the impact of net lending activity, largely offset by a decrease in the weight placed on the adverse scenarios. In the prior year, the provision was $3.1 billion, net charge-offs were $2.2 billion, and the net reserve build was $821 million.”
Yes, while all economic metrics are significantly worsening, especially in the real estate sector, as we discussed in the podcast “Stocks Cheering Up To An Unfolding Global Real Estate Apocalypse”, JP Morgan found it appropriate to LOWER the risk weight the bank assigned to adverse risk scenarios and voilà ! Wholesale lending activity outperformed last year’s performance, despite the market being in a significantly worse shape.
What about Citigroup? These are its own words:
“Citigroup cost of credit of $2.9 billion increased 16%, driven by a higher net build in the allowance for credit losses (ACL) related to deterioration in the macroeconomic outlook in the current quarter relative to the prior-year period and a net ACL build related to transfer risk associated with client activity in Russia, largely offset by a lower net ACL build for volume and lower net credit losses in the card portfolios in USPB”
So here the bank admits the outlook for the macroeconomic environment is deteriorating, something that JP Morgan avoids admitting, but it blames the increase in ACL mostly on its Russia operations. How convenient, right?
Wells Fargo only put aside 1bn USD of provisions for credit losses compared to 1.2bn USD one year ago, following in the same JP Morgan footsteps. However, here is the amazing thing this bank said:
“Provision for credit losses in second quarter 2025 included a slight increase in the allowance for credit losses, reflecting a higher allowance for credit card loans on higher loan balances, partially offset by a lower allowance for commercial real estate loans on lower loan balances”
Yes, despite commercial real estate being the economic sector most in trouble in the current environment, the bank booked lower losses on loans here simply because it managed to trim its exposure as a result of selling the better quality assets, not the worse ones. Incredible, isn’t it?
If you wonder whether this was the reason for WFC shares to tank roughly 6%, I’m afraid it wasn’t. Traders got spooked by the fact that the bank cut its interest income forecasts for 2025. The bank attributes this to the higher interest it pays on deposits, while its average deposits continue shrinking now at ~1.3 trillion USD. If this isn’t a red flag, I don’t know what is, sorry.
The common denominator across all three banks, something we should expect from others that are going to report earnings after them, is a great performance of their trading and brokerage operations. This will be a great cover till the market remains so bullish and traders’ gambling remains wild, but what’s going to happen when the tide turns? These revenues will evaporate at the same time credit losses cannot be hidden anymore.
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