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This Week's Bank Failure: Spinning Positive Earnings
Earnings season officially began this week and nowhere was it more anticipated than in the banking sector. Just weeks ago, several bank CEOs began teasing investors with promises that January and February were rock solid and profitability was heading their way again.
It was a coded message to the Obama administration as well: Thanks for thinking of us, but we've got everything under control now. Carry on.
With the final numbers in, bankers have reason to celebrate. Or so they'd have us believe. From Goldman Sachs to Citigroup, the message was clear: our numbers are up, and business is improving. But what investors are seeing is something entirely different.
Here is a He Said/She said guide to the bank earnings season thus far:
Goldman Sachs:
He (the bank) said: We're so pleased about our earnings we're releasing them a day early. We blew away analysts' expectations with earnings $1.8 billion or $3.39 per share. We also plan to raise capital in order to help pay back the government's TARP money.
She (Mrs. Market) said: Your blowout quarter isn't sustainable. Certain businesses were strong but others were weak. You can't replicate it next quarter. You benefited from changing your fiscal year and leaving out dismal December. Even if you pay Uncle Sam back the government's not going to get off your back.
JP Morgan:
He said: Net profit fell but still beat expectations. Investment banking saw record revenues during the quarter. We plan to pay TARP back and we don't need to raise any money to do so. Toxic assets aren't a problem.
She said: Favorable accounting rules helped boost your profits. Delinquencies from prime mortgages came in below expectations, which could be a sign of more bad news ahead. Also, you might not be pessimistic enough on your forecasts for credit card losses.
Citigroup:
He said: Look at us! We made money! We beat expectations and we are pleased with our performance.
She said. You're making money from bond trading, which isn't sustainable. You got a big boost from new accounting rules. You still have a bunch of crap on your balance sheet to write down. You aren't anywhere close to being out of the woods.
by Megan Barnett
