This week, the big banks reveal their latest quarterly earnings. Lending to banks is down. On top of that, several of the banks face expensive law suits.
So you might be surprised to learn that bank profits are up. Way up. In fact, combined profits at the six biggest US banks last year hit levels not seen since 2006.
These days, it’s not the cash in your savings accounts that makes money for the banks.
“Banks are making money first because the stock market’s been up,” says Jim Sinegal, an analyst with Morningstar. “In addition to keeping your money there for deposits, they’re also selling a lot of investment products. And they typically get fees for that. So, as people have made money in the stock market, the banks have made money as well.”
Banks have lost money because of law suits related to the mortgage mess. But those lawsuits could be wrapped up by the end of the year.
“When we exclude the one-time expenses associated with the problems from the financial crisis and the recession, Bank America’s profitability is quite healthy today. As well as the other large banks,” says Gerard Cassidy, who researches banks for RBC Capital Markets.
Once they put the law suits and government settlements behind them, Cassidy says banks will be even more profitable.