How are the banks now doing so well?

A cable car passes by a Wells Fargo bank branch in San Francisco, Calif.

TEXT OF STORY

Kai Ryssdal: Maybe a better place to be, though, would be inside the corporate suites at Goldman Sachs. Right after the closing bell on Wall Street this afternoon, Goldman reported first-quarter profits of a billion-and-a-half dollars. You roll that in with what we got at the end of last week -- that Wells Fargo's expecting $3 billion in black ink when it reports next Wednesday -- and what you got is a real head-scratcher. Because a lot of analysts and investors are asking what's really changed? How can the banks be so good while so much of the rest of the country isn't? Here's our senior business correspondent Bob Moon.


BOB MOON: Skeptics were pouring scorn on Goldman's earnings numbers even before they were even released today. They say they make no more sense than Wells Fargo's announcement that it's headed for a record-breaking first quarter.

The doubters wonder if the banks are starting to play with expectations, perhaps by not holding back enough cash-on-hand to cover still-mounting loan defaults. Some complain the banks now have wider leeway in valuing their own toxic assets.

But at Rochdale Securities, banking analyst Dick Bove argues the fundamentals do support these strong earnings.

DICK BOVE: You've got all these people shooting off their mouth, because of these hallucinogenic dreams that they have about where losses are in the banking system. They simply don't want to look at what the real numbers show.

Bove points out competition in the banking sector has dried up dramatically. That leaves the survivors in a strong position to make bigger profits lending out what's essentially free government money. At the same time, he contends, their losses aren't nearly as dire as had been widely and he says, as wildly, predicted.

But even if their outlook is improving, market commentator Joe Weisenthal -- at BusinessInsider.com -- says it could just compound the credibility issue at the root of their troubles.

JOE WEISENTHAL: What I'm concerned about is that if the banks report very strong earnings, it'll only fuel the fire, fuel the suspicion that the banks are still not being completely forthright and earnings aren't to be trusted yet.

And Weisenthal says that remains the biggest problem the banks need to overcome.

I'm Bob Moon for Marketplace.

About the author

Bob Moon is Marketplace’s senior business correspondent, based in Los Angeles.

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