US banks

U.S. banks are seeing positive trends in several measures of their health.

That's the good news.

Unfortunately, U.S. banks continue to struggle with some much-more-deeply entrenched problems. Those problems pose a major threat to banking-system health.

And they could even cause the U.S. economy to stumble.

Investors who have been heavily and successfully invested in emerging markets, commodities and precious metals have started to repatriate capital back into the U.S. market in anticipation of domestic growth.

However, to really gauge whether that's the correct move to be making right now, those investors would be wise to keep an eye on U.S. banking trends.

The message here is clear: Don't be fooled by the "official" outlook for U.S. banks - the superficial statistics and their in-depth counterparts tell two very different tales.

Good News for U.S. Banks?

It's important to understand that bank-performance statistics are a compilation of the finances of all reporting U.S. banks. Most of this information comes from statistics provided by the U.S. Federal Reserve and the Federal Deposit Insurance Corp. (FDIC). But, as we'll see shortly, the Top 10 U.S. banks hold more than half of the industry's assets, meaning any of the trend numbers are very likely to be skewed - and in a big way.

The good news for banks - particularly the "too-big-to-fail" giants - is that they are experiencing some real improvements ... at least, by some important measures.

First-quarter profits totaled $29 billion, a 67% profit over the same quarter last year and the seventh-consecutive quarter of bottom-line improvements, the FDIC said.

Total net charge-offs in the first quarter of 2011 totaled $33 billion, a 37% decline that also included a hefty 39% drop in credit-card charge-offs.

Non-current loans fell 4.7%. And in the area of money that's "reserved" against possible future loan losses, banks set aside a full $31 billion less in this year's first quarter than they did a year ago.

The big banks have already turned in several quarters of profit improvements - based mostly on such declines in loan-loss reserves. And now those institutions are flaunting some highly positive trends in asset quality, which they say will result in lower-loan-loss provisions in the future.

Finally, as a result of such strong capital improvements at the biggest of banks, average capital ratios reached an all-time high.

But, the bigger picture isn't as bright as might be indicated by some of these good trends.

And here we must understand how some of these apparently upbeat numbers and trends can fool us.