Rally in Bank Stocks Doesn't Add Up

Financial reports for many banks in the second quarter have looked remarkably consistent: sliding profits, mounting loan losses and soaring stocks.

Large-cap banks such as Bank of America (BAC Quote), JPMorgan Chase(JPM Quote), Wells Fargo(WFC Quote), even Citigroup(C Quote) managed to beat the meager profit expectations of Wall Street analysts, despite smaller profits and a continued deterioration in credit trends.

Approximately 56% of the 39 financial companies in the S&P 500 that have posted results so far have beat earnings estimates, according to Thomson Reuters. Since the beginning of last week, the Keefe Bruyette & Woods Bank Index, which tracks the top 100 banks, is up 35%. ...