The bailout worked. That is to say, if it intended to rescue the giant banks deemed "too big to fail," then by now we can safely assert that it accomplished that end. As Citigroup reports earnings today, we have the first quarter results for all three megabanks, a list that includes JPMorgan and Bank of America. Citi fell in the middle in terms of its performance, but all three banks have come a long way when you look at the numbers.
These extremely complex financial institutions cannot possibly be summed up in a few statistics. But here's a very brief snapshot of the three banking giants' performance by net income, diluted earnings-per-share, and credit loss provision, compared to the prior quarter, quarter a year earlier, and two years earlier:
This chart contains a lot of numbers. Let's first focus on net income. For starters, all three banks started 2011 better than they ended 2010. Just one, Bank of America, had a better first quarter two years ago than it did this year.
Net income's value as an indicator of performance is limited, however, as it must be taken in context. That's why analysts love earnings per share. By this measure, Citi looks like the it had the roughest first quarter. But again JPMorgan leads the pack -- by far. Its $1.28 first-quarter EPS is 220% better than the same period two years ago.
The big banks have had trouble holding on to their revenue over the past few years for one key reason: credit losses. Lots of loans they wrote during the bubble have soured. They caused huge credit loss provisions, which you can see quite clearly by scanning along the 2009-Q1 row at the bottom. How far have banks come since then? You can see this through the percentage change for last quarter compared to the others shown. Here's a chart that sums it up:
Again, JPMorgan is out ahead. Its credit loss provision for the first quarter was the smallest, but it has also declined the most compared to the other quarters shown. Citi and BoA have shown nearly identical declines in their loss provision over the same periods. This means one or more of three things. Citi and BoA had uglier credit portfolios, JPMorgan claimed losses earlier, or JPMorgan is understating losses.
Once the panic subsided, in early 2009, the big banks quickly began to recover. Although they continue to incur massive losses due to their credit mistakes, revenues are consistently overshadowing losses. And those credit losses should continue to decline as the housing market crawls towards its bottom and the broader economy slowly recovers.
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