Which Banks Were Profitable in Q3 and Why?

The numbers for the banking and financial sector’s third quarter of 2009 are in, and they paint a very mixed and tentative picture of how the industry is faring and where it’s headed. As unemployment continues its monthly rise (up to 9.8 percent in September, with 10 percent or more sure to follow) banks are faced with serious problems stemming from delinquent loans and credit. The resulting loan write-offs and infusions of capital into loan loss reserves are taking a serious toll on the banks’ gross revenues, and ultimately lowering shareholders’ stock dividends. Conversely, several banks are seeing their wealth management divisions turn healthy profits, which could be a harbinger of better economic times to come – or at least, be a sign that the worst of the recession is over.

One of the nation’s biggest banks is the Bank of America. The Charlotte, North Carolina-based financial services titan reported losing $2.2 billion on bad loans in the third quarter, a rise of just under 50% from the previous quarter. Particularly bleak were the numbers from the global card services division, which totaled $1.6 billion, up from $167 million a year ago. Offsetting these losses, however, was the performance of Merrill Lynch, which BofA acquired in January. The wealth-management division reported a doubling of its profits from one year ago, and these positive numbers are giving many economists and investors desperately needed hope that the economy is on the verge of recovery. Interestingly, Bank of America’s profit from overdraft fees – after imposing enormous hikes in the fee cost and number charged per day – seems to have been negated by the decision to roll them back.

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Citigroup Inc., which had posted profits in the previous two fiscal quarters, posted third-quarter losses comparable to Bank of America’s, losing $3.2 billion due to massive consumer debt write-offs. Like BofA and other big banks, Citigroup’s investment services division did strong business – but not strong enough to offset credit card and home mortgage losses

One bank reported strong third-quarter earnings: JP Morgan Chase. Like BofA, JP Morgan saw its investment banking division do very healthy business which offset steep losses and write-offs in the credit card and home mortgage loan divisions. Morgan Chase’s strong showing – a $3.6 billion Q3 profit – inspired a rally on Wall Street, sending shares up over 10,000 for the first time in a year.

Clearly, the financial sector is struggling to get out of the recession, with mixed signals suggesting the worst is over. With many economists agreeing that the recession is over, the big questions remaining are when profits will be back, and who will be able to survive the long march back to health.

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