The tide of surplus reserves that began to flow through income statements in the first quarter of 2010 continued to build through the fourth as a tier of banking giants drew down their loss allowances by a combined $7.2 billion during the period.
At five institutions in the group — which is made up of the six largest domestically owned commercial banking companies — reserve releases exceeded or accounted for at least 15% of earnings per share in the final three months of the year, assuming a tax rate of 35% (see charts).
The reduction in Citigroup Inc.'s loss cushion — or the amount by which allowances are not replenished when chargeoffs exceed provisions — increased 11% from
U.S. Bancorp, which has taken a conspicuously conservative approach to letting its allowance wind down, released reserves for the first time in the cycle, but only $25 million. Its ratio of reserves to nonperforming loans nevertheless increased for the fifth consecutive quarter as nonperforming loans fell 6.2% from the third quarter, to $2.8 billion.
Releases of reserves for rapidly strengthening credit card portfolios continued to account for a huge chunk of the total. At Bank of America Corp. they increased almost 50% from the third quarter, to about $1.5 billion, and at JPMorgan Chase & Co. they rose by a third, to $2 billion.
On the year the six companies released almost $21 billion of reserves, but still-wide gaps between allowances and annual chargeoff rates suggest more is to come.
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