Bank of America
Many are touting B of A's earnings as a sure sign that things have turned a corner. I wanted to be one of them. I crossed my fingers and vowed to stay positive. When the results first came out, I was hoping I could at long last say something upbeat about the bank.
But not today. "Earnings," you have to remember, can be a curiously hazy number.
Behind the seemingly solid news is this little nugget in B of A's press release:
[T]he increase was driven by a $5.3 billion pretax gain on the sale of [China Construction Bank] shares … Noninterest income in the period also included a $3.8 billion pretax gain from the completed sale of the merchant processing business to a joint venture.
Ah … so moving things right along were $9.1 billion in gains from selling assets in order to raise much-needed capital. That's kinda important to note when you're talking about a $3.2 billion profit.
These are one-time gains that don't reflect earnings power and, more importantly, reduce future earnings power as promising assets are shed. Without these sales -- looking at the company on a normalized basis -- B of A surely would have been deep in the red. Some might find that intriguing.
Not so pretty in the Citi
Now we move on over to Citigroup
A $4.3 billion profit? Citigroup? Really?
No, not really. And that's what's sad. Citi's $4.3 billion "profit" was entirely made up of selling most of its Smith Barney unit to Morgan Stanley
Never mind that this is obviously a nonrecurring gain. Never mind that without the sale, Citi would have reported a gigantic loss. Oh, and never mind that Smith Barney was one of Citi's only consistently stable sources of earnings. People see green, and they get fired up. That's the life of an investment community whose outlook is firmly locked in a 90-day timeframe.
I've noted that Goldman Sachs's
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