How the 10 Biggest Banks Make Money Now Might Surprise You

NEW YORK (TheStreet) -- Banks are still struggling to reinvent themselves six years after the financial crisis. But as banks prepare to post third quarter earnings -- with JPMorgan Chase (JPM) , Wells Fargo (WFC) and Citigroup (C) all reporting Tuesday -- it's surprising how some things haven't really changed.

Many banks still make money the old fashioned way: by gathering deposits and making loans, says Dick Bove, analyst with Rafferty Capital Markets.

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Traditional banks also offer a series of business services which "basically means handling checks and credit card payments," Bove says. Some of them manage money, and the biggest banks especially Bank of America (BAC) , JPMorgan, Citigroup, Goldman Sachs (GS) and Morgan Stanley (MS) also trade and give investment banking "advice" to companies, which often means selling securities and other products in connections with acquisitions.

The loan volume in the third quarter was "reasonably good" according to Bove, driven mostly by commercial and industrial loans "which both reflected  the economy and  all of these leveraged loans being made on mergers and acquisitions," Bove says. Lending in credit cards, commercial real estate and autos was also good, he adds. Weak areas were one-to-four-family loans and home equity loans.

"Still, on balance they did better with loans. That's the most important factor and that's what drives their earnings," Bove says.

Banks "did a pretty good job in collecting deposits," effectively allowing them to borrow from consumers and corporations at rates below the rate the U.S. pays its creditors, holders of Treasury bonds.  

"Their margins were not great in the quarter, but they were okay. They did not run into any loan loss problems. Just the opposite. Loan losses are so low right now in the industry that banks are adding to earnings by reducing their loan loss reserves. And their cost of doing business, which soared over the last few years due to regulations, litigation, fines and the like seems to be flattening out and coming down," Bove says.

For the bigger banks involved in investment banking and trading, "investment banking brought in a lot of new business but most of it is going to get paid in the fourth quarter and the first quarter next year because there's a long lead cycle from announcing a merger to completing it."

However, IPOs and corporate bond sales have been strong, Bove says.

"Investment banking did well but it's going to do a lot better in the next few quarters. Trading  in the months of July and August was horrible. In September it started to come back. So trading looks like it's going to be weak but may not be as weak as people expect."

Here is how the 10 largest banks by assets get their revenues. The data comes largely from Bloomberg, though some is taken directly from corporate filings.

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