Bank earnings are looking pretty good. Barclays (BCS) announced that it made over $18 billion in 2009. Goldman Sachs (GS) had record profits. JP Morgan (JPM) results were better than expected.
Barclays' numbers were driven by assets it bought from Lehman Bros. and sharp improvements at its investment bank. But results from its retail bank operation were weak. So were numbers from its commercial loans. The bank still faces write-offs of leveraged assets on its books. In short, Barclays faces the same problems as most large American financial firms, which could make for a rocky 2010.American banks are particularly vulnerable to problems in commercial real estate and consumer loans. Even JP Morgan, run by its well-regarded CEO Jamie Dimon, has warned that his firm's results will be hit by weaknesses in these markets. Goldman Sachs may avoid many of the problems because such a large portion of its earnings come from proprietary trading.
Barclays' shares rose over 7% after it announced earnings. US bank stocks also rose sharply. But investors may not be doing a good job of looking ahead, as problems with real estate loans and credit card defaults are likely to remain high or even increase this year.
Beyond the balance sheet problems at many banks, the "Volcker rule" or some version of it may still make its way out of Congress. That could crush earnings from proprietary trading. A firm like JP Morgan could take a double hit as it loses the profits from its trading desks and write-offs from its consumer and real estate loan portfolios mount.
The bank stock rally is likely to be short-lived.
Bank Earnings Look Good, but Not for Long