The banking “recovery” is less than it seems from earnings

We’ve got half a banking recovery. That’s not at all the same as being halfway through a banking recovery. What the second quarter results from Goldman Sachs (GS), JP Morgan Chase (JPM), Citigroup (C), and Bank of America (BAC) tell us is that profits from the investment banking side of banking—arranging financing for big company clients—and trading are back big time. But the other side of banking—the bread and butter business of making commercial loans, lending to credit card holders, and the like is still bleeding oceans of red ink.

What we’ve got now is a banking sector rigidly divided into winners and losers. Worryingly for investors inclined to pile into the winners, the profits from the businesses that are thriving right now are way more volatile than those from the stodgier traditional parts of banking. You’ve got to wonder if Goldman and JP Morgan Chase can keep it going and for how long given the normal ups and downs of investment banking and trading. Read more