US Q1 Bank Results: Just a Blip?

This is a great improvement on the last quarter, when JPMorgan made only $702 million Q4 net income; Citigroup lost $8.29 billion losses; and Bank of America made a $1.79 billion loss thanks to Merrill's $15.3 billion losses.

Now everything in the garden is rosy, isn't it?

No.

If anyone thinks we've seen the worst, then think again.

First, you have the USA running stress tests on the banks, which has all the bankers pretty stressed. 

The results of these tests will be released on May 4th, but don't expect any big shocks. No bank is going to be shown as distressed, as it's not in the government's interest to go anywhere near that route.

Second, President Obama said that more taxpayer money is needed to bailout the banks yesterday: 

"Different banks are in different situations. They're going to need different levels of assistance from taxpayers ... If taxpayer money is involved, I've got a responsibility to ensure some transparency and accountability in the operations of those businesses. We try to use as light a touch as we can. But I am not going to simply put taxpayer money into a black hole, where you are not going to see results."

More taxpayer money is needed?

"A black hole"?

Why would he make such a statement if the issues have gone away and the banks are back in the black?

Third, credit cards are the next big hole. 

Citi's latest results show that credit card delinquencies have doubled to 2.14% from under 0.96% in the previous quarter.  With $145.9 billion of credit on those cards with just Citi alone, this is a massive issue for them and JPM, BoA, HSBC and more.

Fourth, did the banks actually make money in Q1, or were they gifted that money by another operator, such as AIG? Only two weeks ago I mentioned that Zero Hedge has spotted AIG were unwinding their complete credit default portfolio during January and February, which immediately gives everyone a bonus.

Finally, with Ken Lewis at BoA under threat and Merrill Lynch rumoured to be falling apart at the seams, can these large banks really expect to sustain growth and profitability through Q2? 

Not if BoA is an example to follow where most of their Q1 profit came from asset sales and credit spreads ($1.9 billion gain from selling shares of China Construction Bank and $2.2 billion of gains tied to widening credit spreads).  And take particular note that credit loss reserves were increased to $13.38 billion, up from the $8.54 billion in the previous quarter.

Don't be too cocky about these results.

Postscript: more can be seen about this at Bloomberg TV where I was interviewed this morning resulting in the headline: "Skinner Says 'Time To Move On' for Bank of America Chief"!!!!

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