WSJ vs Bloomberg on Bank Profits
In two takes on bank profits, the WSJ focuses on how U.S. banks are finally emerging from the wreckage of the financial crisis and as a group JP Morgan Chase (JPM), Bank of America (BAC), Citigroup (C), Wells Fargo (WFC), Goldman Sachs (GS) and Morgan Stanley (MS) earned $76 billion in 2013, $6 billion shy of the collective peak and notes that the banking industry is expected to generate more profit as interest rates rise and institutions are able to charge more for their loans. Headwinds do remain including a tough regulatory climate and a slow in the demand for mortgages and refinances but revenues have risen 4% for the six in 2013.
While Bloomberg BusinessWeek, focused on the fact that JP Morgan Chase, Bank of America and Wells Fargo despite benefitting from growing deposits, fewer bad loans and higher investment banking fees had unusually large gains related to loan-loss reserves. JP Morgan had gains of $1.3B, Bank of America $1.8B and Wells Fargo $600M. The story with these gains is what happens during a financial crisis is banks have to reserve more to cover liabilities from bad loans. If a bank makes it through those hard times then eventually the IRS will argue that those reserves need to be taxed as they are profits since the loans haven’t gone bad.
The good news for JP Morgan and Bank of America is that they had $1.1B and $2.3B in legal expenses respectively, related to legacy issues that they aren’t likely to have going forward.