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Bank profits up, but bank health is not

November 22, 2011 |  8:44 am

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At a time when banks are making almost daily announcements of layoffs, the latest report from the Federal Deposit Insurance Corp. would seem to suggest a turnaround in the industry.

According to the FDIC's quarterly report, banks earned $35.3 billion in profits in the third quarter, up a staggering $11.5 billion from the same quarter last year.

But beneath the headline numbers, the details in the report suggest that business is not booming.

According to the report, most of the increase in bank profits can be attributed to the banks claiming fewer losses on their loan portfolios than they did a year ago. Small loan-loss provisions suggest that consumers and businesses are defaulting on fewer loans, which is good for the larger economy. But it does not point to any real increase in revenue and business at the banks.

"Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete," the FDIC's acting chairman, Martin Gruenberg, said in a statement.

The profits reported by the large banks in the FDIC report are even less promising for the industry. The American Banker points out that a large chunk of the announced profits at large banks were due to an accounting quirk, not new business:

"Absent these unrealized gains, net operating revenue would have posted a year-over-year decline for a third consecutive quarter," the FDIC said in the report.

These details, rather than the headline about profits, are consistent with other reports that have been released recently, showing that U.S. banks are in for an extended period of slow growth and layoffs.

Last week, bank analyst Mike Mayo told The Times, "This year will show the slowest revenue growth for U.S. banks since 1938, and this decade will be the slowest decade of revenue growth since the Great Depression."

On Tuesday, Bloomberg reported that the financial industry has already eliminated 200,000 jobs this year, more than the number of jobs that were lost during all of 2009.

Also on Tuesday, the New York Times put a spotlight on all the young college graduates who had hoped to work in finance, but who have struggled to find jobs, or found jobs and then were laid off. One young man, who was laid off by Credit Suisse not once, but twice, told the paper, "I did everything right. I came into work every day, I put in long hours, and I still got punched in the face."

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-- Nathaniel Popper

twitter.com/nathanielpopper

Photo: A former employee of the Wall Street firm MF Global leaves the company's Manhattan offices after the company went bankrupt and laid off all its employees. Credit: Reuters / Brendan McDermid

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