Banks Have Not 'Turned a Corner'

NEW YORK (TheStreet) -- Wall Street was upbeat in mid-April because the country's four largest banks (Bank of America (BAC), JPMorgan Chase (JPM), Citibank (C), and Wells Fargo (WFC)) all reported what Wall Street considered "turning the corner" earnings and all the CEOs except Bank of America's Moynihan were positive on the immediate future. The data, however, do not lead to such conclusions.

Profits rose at two of the big four. Citibank's profit rose to $4.43 billion in the first quarter of 2010 from $1.59 million in the first quarter of 2009. Believe it or not, Citibank's profits were the highest reported among the group despite the fact that they have been selling off many of their most lucrative businesses, like the Smith Barney brokerage unit. At JPMorgan, profits rose to $3.33 billion from $2.14 billion in the first quarter of 2009. At Bank of America and Wells Fargo, profits fell. The $2.5 billion profit at Wells Fargo was 16% lower while Bank of America's $3.2 billion profit was lower by 25%.

Sources of Profit

The basic source of profits at all four of the institutions was their proprietary trading operations (75% at JPMorgan, more than 50% at Bank of America, and 40% at Wells Fargo). No wonder there is such a furor over the proposed Volcker rule (restrictions on proprietary trading) in the financial reform legislation.

The health of the industry is often measured by top line revenue growth. Using this measure would not lead to the conclusion that the industry is "healthy," as at three of the four, top line revenue fell from year earlier levels. At Citibank, top line was down 5.8%. It was the lowest in four quarters at Wells Fargo, and it fell 11% at Bank of America. Only at JPMorgan did top line rise (5.0%).

Asset Quality

As measured by asset quality, the basic banking function was still in the doldrums. Citibank said its charge-offs were higher. At JPMorgan, defaults were at an all time high and mortgage defaults continued to rise. The $131 million loss in JPMorgan's retail banking unit was much lower than the $474 million profit a year earlier. Only credit card losses of $303 million showed improvement over the $547 million loss of the first quarter of 2009. That's not a lot of evidence to indicate that "this would be the makings of a good recovery" as suggested by Jamie Dimon, JPMorgan's CEO.

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