First-quarter bank earnings have been hit significantly by Covid-19 provisions against expected credit losses (ECLs). To date, US banks' provisions have been greater than their European competitors.
US banks are more profitable and, generally, have a more diversified business model than European banks, which have suffered from post-financial crisis regulations and persistently low-interest rates. US banks' have a greater capacity to absorb larger provisions - which can be released if the economy does better.
In contrast, the reality could be worse than current provisions for European banks. We expect US banks' profits to be both higher and less volatile over the next 2 years, with European banks potentially having to increase their provisions as current economic conditions persist or take longer to improve.