Wednesday, October 14, 2009

Big Banks Are Still Getting Bigger

Although too large to fail financial institutions cost the US billions in bailouts, we are now seeing these troubled institutions actually getting bigger. This can be good in the sense that they are healthier and able to lend money to businesses and people, but it is still troubling since they could fall over night. See the following post from The Street for more on this.

Whether you credit the taxpayer bailout or believe that top banks never needed one, this exclusive analysis by TheStreet shows that the biggest U.S. banks are more profitable now than last year.

As we head into the third-quarter earnings season, with high expectations for company profits, this review of the second-quarter financials sets the stage:

JPMorgan(jpm Quote) produced $2.7 billion in earnings in the last quarter compared with $2 billion the year before.

Citigroup (C Quote) nearly doubled earnings in the second quarter to $4.3 billion from $2.3 billion a year earlier.

Goldman Sachs' (GS Quote) second-quarter profit jumped to $3.4 billion from $2.1 billion in the same period of 2008.

The only laggard is Bank of America (BAC Quote), whose profit slipped to $3.2 billion in the second quarter from $3.4 billion the year before.

In one of those great historical ironies, trading has emerged as an outsize component of bank earnings after the wreckage in the markets caused in no small measure by the big banks themselves.

Meanwhile, smaller banks are struggling.

Regional banks listed in the S&P 500 are expected to post a cumulative net loss of $1.23 billion for the third quarter vs. an equivalent profit of $1.45 billion in the year-earlier period, according to Thomson Reuters.

The index holds the largest regional banks including Comerica(CMA Quote), Fifth Third Bancorp (FITB Quote) and KeyCorp (KEY Quote), among others.

If President Obama is serious about shifting power away from big banks to prevent a repeat of the past year, then he better get busy.

This post has been republished from The Street, an investment news and analysis site.
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