Thursday, January 20, 2011

Bank Earnings Summary

Ahead of BAC earnings in the morning I wanted to summarize those of C, WFC, JPM this week. The chart below shows the highlights from Q4 2009 through Q4 2010.  The data speaks for itself.  Declining to flat total revenues, declining net interest revenue, declining provisions for loan losses and rising non interest expense.

Bottom line, banks are earning less while expenses are going up.  I read today that MS is deferring part of their employee compensation.  If business is so great and there is no fuzzy FASB math from an accounting standpoint then were is the cash to pay compensation now?

C by far is the scariest looking bank right now.  Should asset prices continue to decline which will result in even further percent home defaults, these banks are not properly reserved.  I see one of those "kitchen sink" quarters in 2011 where banks take a nasty charge to provision for credit losses all at the same time.  Their bet is housing improves but if you think of it, right now they need to show confidence in the economy and their earnings to defend their stock.  From a strategic standpoint it makes sense for them to cross their fingers that asset prices have bottomed and reverse.  I don't see it at all but why take a hit now when you can kick the can further down the road.  Either way you are getting whacked.  My take at least.


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