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US banks

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Goldman Sachs Group Inc. (NYSE: GS) Earnings: How the Mighty Have Fallen…

By , Associate Editor, Money Morning -

The Goldman Sachs Group Inc. (NYSE: GS) earnings report released before the bell today (Wednesday) is one of the most dramatic examples of how U.S. banks are struggling to return to healthy profitability and revenue growth.

Goldman Sachs earnings came in at $1.84 a share, 58% lower than the same quarter last year. Revenue fell 30% to $6.05 billion.

Though dismal, the earnings beat analysts' estimates, which were as low as 70 cents a share - an 82% drop from last year's fourth quarter and a far cry from the whopping $8.20 a share in 2009.

"It looks like nothing's working right now," Jack Kaplan, portfolio manager at Carret Asset Management, told Reuters. "They were below expectations on virtually everything on the revenue side."

This was the second-lowest quarterly revenue for Goldman Sachs since the financial crisis, as U.S. banks' earnings continue getting squeezed from a weak global economy and increased regulation.

Another Disappointing Quarter for Goldman Sachs Earnings

This was the fourth consecutive quarter of declining revenue for Goldman Sachs.

The third quarter of 2011 was especially painful, with Goldman's revenue down 47.9% from 2010's third quarter. Goldman reported a loss of $428 million, compared to a $1.74 billion profit from the year before.

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It's Time to Bail on Bank Stocks

By , Global Investing Specialist, Money Morning -

There was a time when bank stocks actually looked like good investments. And many, having racked up big gains over the past two years, proved to be just that.

But sadly, U.S. banks no longer offer the value and profit-making potential they did immediately following the financial collapse. In fact, they're actually heading for what could be a catastrophic decline.

Let me explain.

On February 18, 2009, I wrote a piece that said bank stocks should not be written off.

I observed at the time that the best U.S. banks had huge business strengths that were not fully undermined by the financial crisis. So I advised investors buy shares of the best among them.

As it turns out, that recommendation may have been too timid.

That is, most bank stocks - including some of the weakest and least investment-worthy - have surged since my article's publication.

Even following a lukewarm second quarter and last week's market meltdown, the top six banks - Citigroup Inc. (NYSE: C), Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (WFC), Goldman Sachs Group Inc. (NYSE: GS), and Morgan Stanley (NYSE: MS) - are in a relatively impressive position.

Take a look for yourself:

  • Goldman Sachs stock is up about 22%.
  • Bank of America is up 30%.
  • JPMorgan is up about 49%.
  • And Wells Fargo is up 55%.
Only Citigroup, down about 13%, and Morgan Stanley, down 20%, have seen their stock plunge.

But in light of this remarkable run up, and the disastrous pitfalls that lie ahead, now is the time to bail on bank stocks.

Margins are narrowing, government regulation is increasing, and the outlook for big deals is drying up.

In other words: The risks related to bank stocks are as present as they ever were - just the profitability is missing.



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Don't be Fooled: U.S. Banks Aren't as Strong as They Look

By , Chief Investment Strategist, Money Morning • @ShahGilani_TW -

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.

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