While reporting third-quarter results, CEOs and finance chiefs at the five biggest US lenders gave a muddled picture of what to expect. Will loan losses from the coronavirus recession get worse, much worse or extremely worse over the next six-to-12 months? All of the above, bank executives said this week.

Wells Fargo & Co’s profit plunged 57% in the third quarter. Bank of America Corporation (BofA) missed Wall Street estimates for third-quarter revenue.

Economic conditions improved in recent months thanks to pandemic lockdowns lifting, as well as government assistance and loan forbearance. But it is not clear that stimulus programmes will continue or whether the world is headed for a new wave of infections.

“The economy and the markets this year have been defined more than anything else by the impact of the global health-care crisis,” Bank of America Corporation Chief Executive Brian Moynihan said on Wednesday. “This has created a sinuous path for the recovery.”

The US job market improved, consumer spending rose and borrowers continued to use extra cash to pay down debt, helping the overall credit picture. Banks put far less money aside for souring loans in the third quarter than they did earlier this year, and have not experienced any meaningful loan losses yet.

However, Bank of America, Citigroup, JPMorgan Chase & Co and Wells Fargo & Co executives warned that losses on various types of loans might not really take shape until next year. For instance, credit-card write-offs usually happen after 180 days of delinquency, and those borrowers are still largely current.

“We are still in the midst of a crisis,” said Citigroup Chief Financial Officer Mark Mason. The pandemic has put pressure on Citi’s credit card business, because customers used plastic less and paid down debt.

Commercial borrowers facing pandemic-related business pressure are not slacking on payments yet, either.

Bank of America expects commercial losses to be “lumpy” next year, depending on what happens to particular companies, Chief Financial Officer Paul Donofrio said. Goldman Sachs Group Chief Executive David Solomon pointed to the restaurant, hospitality and oil and gas industries as particularly vulnerable. “There continues to be enormous uncertainty globally in the trajectory of the virus,” he said.

JPMorgan, the largest US bank, has become more optimistic about how the pandemic may affect its loan book, with its “base case” scenario looking better than it did three months ago.

The bank is far from certain the trajectory will continue though, with CEO Jamie Dimon saying reserves could be off by $10 billion to $20 billion if things get a lot better or worse.

Wells Fargo & Co’s profit plunged 57% in the third quarter, missing Wall Street’s expectations as persistent costs tied to its years-old sales practices scandal continued to haunt the bank.

Like chief executives before him, new CEO Charlie Scharf, now one year on the job, has made cost cuts a cornerstone of his turnaround plan. He targeted $10 billion in savings annually over the long term, but investors are growing impatient.

Cost-cutting initiatives are under way as Scharf begins implementing changes across the bank. Headcount fell by more than 1,000 from the prior quarter. But firm-wide expenses inched up slightly due to scandal-related operating losses and a $718 million restructuring charges tied to severance. Bank of America missed Wall Street estimates for third-quarter revenue on Wednesday as the lender was squeezed by lower interest rates, and it set aside $1.4 billion to meet future losses in its commercial loan portfolio.

Net interest income at the bank, a key measure of how much it can make from lending, sank 17%, showing the effects of the US Federal Reserve’s moves to slash interest rates to near-zero and promise to keep them there to help spur growth.

However, a tight lid on costs helped the bank beat profit expectations.

Charlotte, North Carolina-based Bank of America is especially vulnerable to rate movements because of the composition of its balance sheet.

The lender also posted weak results in its sales and trading arm, in stark contrast to JPMorgan Chase & Co and Citigroup, which on Tuesday reported a 30% and 16% rise in trading revenue, respectively.

The second largest US bank by assets posted an adjusted revenue of $20.45 billion, compared with analysts’ average estimate of $20.81 billion, according to IBES data from Refinitiv.

Reuters