Some people, eager to call the financial crisis over, have pointed to the profitable first-quarter reports from various major banks, like Wells Fargo, Goldman Sachs and now Bank of America, as a positive sign. While the banks' increasing revenues are better than losses, the underlying problems remain. See this report on BoA, which made $2.81 billion last quarter:
While results topped analysts' forecasts, they were bolstered by one-time events, including a $1.9 billion gain from selling shares of China Construction Bank Corp and $2.2 billion of gains tied to widening credit spreads. Nonperforming assets, meanwhile, totaled $25.74 billion, up 41 percent from year-end.
Nonperforming assets indeed. This strikes me as clear evidence that backstopping the banks' capital reserves and hoping they can earn their way out of this mess (while trying to improve the economic factors, particularly the housing markets where many of these nonperforming assets are based) is going to create a very slow recovery.
-- Tim Fernholz
