The impressive numbers included a $3 billion second-quarter profit announced Friday by Citigroup and $2.4 billion for Bank of America. They followed similarly robust earnings for Goldman Sachs and JPMorgan Chase.
That the banks managed to turn a profit at all is remarkable. Just 10 months ago, many of them looked to be on the verge of collapse. The stock market staged a huge rally this week, driven by the signs of health in banking.
But Bank of America CEO Ken Lewis had some sobering words during a conference call with Wall Street analysts after his company's results were released Friday: "Profitability in the second half of the year will be much tougher than the first half."
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Bank of America Corp., JPMorgan Chase & Co. and Goldman Sachs Group Inc. earned profits this spring largely on investment banking and trading
- not traditional banking businesses, which still look shaky. Citi benefited from selling its majority stake in the Smith Barney brokerage.
Strip away those money-makers, and the banks have to rely on customers who are losing their jobs or earning less money. The banks will suffer as long as their customers do.
Bank of America, JPMorgan Chase and Citigroup Inc. all reported they lost more money on loans during the second quarter. Bank of America alone set aside $13.4 billion to cover loan losses. But the banks also saw signs that loan delinquencies were starting to stabilize.
Celent analyst Isabel Schauerte said Bank of America's earnings tell the story of the financial industry.
"B of A's results are the bellwether of where Main Street is headed. Measured by credit losses, a moderation of default rates is not in sight," Schauerte said. "For the investment banking business of B of A, in contrast, the worst days seem to have passed."
President Barack Obama's top economic adviser said the signs of improvement displayed by the banks would not have been possible without government infusions, guarantees and other programs provided by the government.
"There is no financial institution that would be reporting the kind of positive results that we have seen in the last quarter but for the extraordinary public support provided by the government," said Lawrence Summers, the director of the White House's National Economic Council.