Five major banks are preparing to collectively “reduce the burden” in Q2, with Goldman Sachs leading the way with 73% slash! US banking uses real money to vote for economic confidence
The Zhitong Finance App learned that on Tuesday, five major US banks successively disclosed financial reports for the second quarter. One key indicator attracted market attention — a collective reduction in credit provisions (that is, loan loss reserves). Goldman Sachs, Bank of America, J.P. Morgan Chase, Citigroup, and Wells Fargo all reduced their provision scale compared to the same period last year, sending a signal of growing optimism about economic prospects and borrowers' credit conditions.
Goldman Sachs led the decline, and Phu Quoc benefited from a recovery in commercial real estate
Judging from specific data, Goldman Sachs Group saw the most significant decline. Credit provisions fell to about US$102 million in the second quarter, a sharp drop of 73% from US$377 million in the same period last year. This cliff-style decline is due in part to the bank's active contraction of the credit card loan business — it had large-scale plans in the same period of 2025, but now the pressure to prepare has naturally been released after the strategy has been adjusted.
Bank of America and J.P. Morgan Chase lowered their provisions by 14.2% and 11.7%, respectively, to US$1.37 billion and approximately US$2 billion (exact figures not provided in the original text, but refer to previous Bank of America data). Citigroup's decline was approximately 12%. Wells Fargo's provision fell by about 9% to $914 million, and the bank clearly attributed the improvement to the quality of its commercial real estate loan portfolio — previously market concerns about office loan defaults are gradually fading away.
Currently, as the last of the six major companies, Morgan Stanley has yet to announce its results. It will be announced on Wednesday, and the market anticipates that its preparations will also show a downward trend.
Decline in provisions: Economic resilience exceeds expectations, credit quality is stable, moderate and improving
Credit provisions are funds reserved by banks to cover potential loan losses. The less accrued, the higher the current profit. There is a combination of positive factors behind the five major banks that have all reduced their provisions.
On the one hand, the consumer sector showed strong performance. Earlier, Bank of America's financial reports showed that its consumer business relied on 39 million checking accounts, and observed that residents continued to spend in the fields of travel and entertainment. Total credit and debit card spending increased 9% year-on-year, and the default rate was low. Consumption accounts for about 70% of the US economy. As long as households have healthy balance sheets, banks don't need to worry too much about retail loans.
At the same time, commercial real estate risks are gradually being released. Wells Fargo bluntly said that the improvement in its commercial real estate loan portfolio is the main reason for the decline in provisions. As the impact of the normalization of telecommuting is gradually being digested by the market, and valuations of some high-quality properties stabilize, the overly pessimistic expectations in the early stages are being revised.
Furthermore, the overall credit quality is stable. Bank of America Chief Financial Officer Borthwick said in a conference call that “credit quality is still strong and in line with expectations,” and that overdue rates and net write-off rates in various business segments showed no signs of deterioration. The resilience of the macroeconomy, which exceeded expectations, gave banks the courage to lower their provisions.
The provision is an expense item in the bank's income statement, and its reduction has a direct effect on boosting net profit. Take Bank of America as an example. Its net profit for the second quarter was 9.1 billion US dollars. If provisions are not reduced, profits will shrink. Goldman Sachs reserves plummeted by 73%, which also provided important support for its profit rebound. In a context where trading and investment banking businesses have benefited from market fluctuations, the reduction in provisions can be described as the icing on the cake.
As far as the current quarterly data is concerned, the five major actions suggest that the dark period may be over. Evercore ISI stated in the research report that the banking industry is experiencing “hot summer” performance. Morgan Stanley's report card is about to be released, and the market is waiting to see if it can continue this optimistic tone.
A collective reduction in provisions is generally seen as a sign that the economic cycle is turning positive. While increasing current profits, the reduction in provisions also reflects management's confidence in asset quality. However, the market still needs to be cautious. Geopolitical risks may impact energy prices and affect consumers' purchasing power, and if the Federal Reserve maintains higher interest rates for a longer period of time, pressure on companies and individuals to repay their debts will become apparent.