Fed’s Loan-Loss Projections May Disappoint Bank Investors

Investors may be disappointed by how U.S. banks perform in Federal Reserve stress tests as examiners expect consumer-loan losses to surpass the industry’s estimates if there’s another severe recession, analysts say.

The Fed generally has predicted firms would suffer greater losses on mortgages and credit cards than what banks estimated in capital plans submitted in January, two people with knowledge of the situation said last week, without identifying specific firms. The divergence may endanger some of the $9 billion in dividend increases and share buybacks analysts estimate may be announced after the Fed releases results this week.