NEW YORK (TheStreet) -- Blowing past the noise from the reserve releases that have padded large banks' bottom line over the past two quarters, TheStreet has identified 10 large banks that have significantly boosted their operating revenue.
For many large banks at this point in the credit cycle, it is appropriate, and even required by accounting rules, to release loan loss reserves. A case in point is Citigroup (C), which reported third-quarter net income of $2.2 billion, boosted to a great degree by a $2 billion release of loan loss reserves, as net loan charge-offs exceeded the company's provision for loan loss reserves. A year earlier, Citigroup reported net income of just $175 million.
If we exclude loan loss provisioning activity, the story changes. Citigroup's pre-provision net revenue for the third quarter was $8.4 billion, declining from $11 billion during the third quarter of 2009, according to SNL Financial. SNL defines pre-provision net revenue as a bank's net interest income plus noninterest income, minus noninterest expenses.
While Citigroup's net interest income increased 8% year-over-year to $13.4 billion during the third quarter, the company's noninterest income (mainly commissions and fees) declined 38% to $6.75 billion. Noninterest expense declined 4% to $11.78 billion. The company's largest revenue decline was from its Local Consumer Lending unit, which is among the units Citigroup has placed into its Citi Holdings subsidiary, as part of CEO Vikram Pandit's strategy of winding-down certain business segments.For JPMorgan Chase (JPM), third-quarter net income was $4.4 billion and the while loan loss reserves declined by $1.675 billion, the company set aside $1 billion for mortgage purchase reserves and $1.3 billion in additional litigation reserves. Despite the additional reserves springing from the foreclosure mess and other legal concerns, JPMorgan's net income increased 23% year-over-year, mainly because its provision for credit losses declined to $3.2 billion from $9.8 million. Pre-provision net revenue declined to $8.6 billion during the third quarter from $12.9 billion in the third quarter of 2009, as net interest income declined slightly to $12.6 billion and noninterest income declined 23% to $10.4 billion as investment banking fees declined 12%, lending and deposit fees declined 14% a credit card fee income declined 14%. The company's noninterest expenses increased 7% year-over-year, to $14.4 billion. This is not to say that Citigroup and JPMorgan are bad choices for investors, as both companies have weathered the storm and JPMorgan is obviously strongly positioned for the years ahead. However, the numbers show that investors need to look deeper than the first paragraph of an earnings release to see the full story. Using data provided by SNL Financial for the largest 50 U.S. bank holding companies by total assets, the following ten banks have had the largest year-over-year increases in pre-provision net revenue. A few of the names have benefitted from purchases of failed banks from the Federal Deposit Insurance Corp. and some saw their operating earnings rise as a result of the consolidation of off-balance-sheet conduits onto their balance sheets during the first quarter, as required under new accounting rules.. Some of the other names may surprise you.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV