We’re typically hesitant to disagree with the wisdom of the market. Trying to claim that the market isn’t valuing something correctly is typically futile, and usually just embarrasses the person making the claim.
Right now, the market sees a much higher likelihood of future financial solvency than it did just two months ago. And indeed this week’s initial bank earnings seem to bear out that assessment. Things are getting better.
But basically, when you look at the reports from the first week of earnings season, there’s not much to get excited about.
Goldman Sachs (GS) reported a blowout profit, but it was all due to results in the one fixed income and credit unit.
JPMorgan (JPM) also had a great quarter with respect to trading, as was helped in large part by its government-assisted purchases of Bear Stearns and Washington Mutual.
And then today you had Citigroup (C), which had to torture its numbers in order to get a profit, though EPS was still negative.
In each of these instances, there was little to like about the core business of banking. Lending, asset management, credit cards, mortgages, etc., continue to look sickly. It’s great that the banks found fat spreads in the trading operations, but if you’re looking for signs that American banking has normalized or stabilised, you didn’t see much this week.