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US Q1 Bank Results: Just a Blip?

So we've seen major US banks announcing great results in the last week with Citi dropping in with $1.6 billion after almost two years of losses; JPMorgan $2.1 billion; Goldman $1.8 billion; Wells Fargo (reporting Wednesday 22nd) expected to post $3 billion; and Bank of America reporting $4.2 billion profits at lunchtime today.

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"!!!!

The Finanser Blog is sponsored by Just Giving this week.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • Chris
    Caught your interview on Bloomberg this morning. Great job!
    Steve Audino