There has been a lot of action lately in the banking industry and the stock markets. I recently wrote about how fair value accounting could boost the value of bank stocks. Since then, much of the banking industry has been on a tear – in some cases climbing 30% or more. I’m not recommending that anyone invest in bank stocks though. Always do your due diligence before investing in any stock or industry.
Profits up for some banks
Last week Wells Fargo announced they were expecting a $3 billion profit – which was a pleasant surprise for the banking industry. Both Citigroup and Bank of America also recently announced that they operated at a profit during the first two months of the year.
Still some dangerous times for banks ahead
While some of these banks are currently operating at a profit, they also have a lot of toxic assets remaining on their books. The operating profit does not include such items as reserves for credit losses, nor does it account for troubled assets that may not be repaid in the future. The results look good now, but charge offs and failed mortgages and other debts could cause big problems down the road. Many banks are going to need to continue raising capital to hedge against loan defaults.
Related High Yield Savings Account information.
A previously published article, How the FDIC Takes Over Banks, was recently included in the Carnival of Pecuniary Delights No. 3 – The Money Box Edition, which was held at Miss Money.