Although the economy continues to struggle, and unemployment numbers continue to increase, financial institutions are showing profits. This suggests the worst of the credit crisis is over, as many banks are charging less to cover bad loan losses. Read more from CNNMoney.com.
As the economy goes, so goes the financial sector, which explains why bank shares have taken a hit ever since fears of another slowdown emerged. But you can't just look at stock prices. You have to weigh the performance of the underlying businesses. When you do, you may be in for a bit of a surprise.
With unemployment about as high as it's been in 30 years and the nastiest real estate bust in almost a century still playing out, you'd think that big banks would be having a rough time making money, right?
Actually, they're pretty much printing profits. The big four -- Wells Fargo, Bank of America, Citi-group, and J.P. Morgan Chase -- collectively earned almost $14 billion in the second quarter.
The good news: Fewer deadbeat borrowers
This is a reflection that banks are having to charge off less to cover bad loans, which suggests the worst of the credit mess is really behind us. Wells recently trimmed its loan-loss reserves by $500 million, which went straight to its bottom line. Over the next few years, it could release as much as $11 billion more.
Another plus for banks: Funding costs are incredibly low right now. While you may be frustrated with the paltry interest rates you're getting on your CDs, these low rates are manna from heaven for banks.
