Bank figures don't fool US analysts - Saturday July 18, 2009

Two United States banks battered by the global financial crisis have announced much better than expected results for the last quarter. Bank of America and Citigroup are now billions of dollars in the black, but the big figures did not fool bank analysts.
The results show the major traditional banks are slowly repairing their books and follow the lead set by investment banks JPMorgan and Goldman Sachs earlier in the week.

Chief White House economic adviser Larry Summers cited improvement in the financial sector as evidence the greater economy is also on the mend. "The American economy is again progressing," he said. Mr Summers says the US economy has come back from the abyss but still needs exceptional support to ensure recovery. "The economy was in freefall at the start of the year with no apparent limit on how much worse things could get," he said.

But today's bank profit figures did little to settle unease about the underlying condition of the US economy. In fact some saw the reporting as a clear attempt by Citigroup and bank of America to disguise their true financial positions. If major one-off sale transactions are removed both banks would have shown huge multibillion dollar losses. Both banks set aside increased provisions for bad loans. Credit cards have grown as a trouble spot for the banks, with the Bank of America reporting it is not collecting payments on about $US26 billion of its credit card portfolio; an increase in the quarter defaults of about 10 per cent.

With unemployment rising, revenues for traditional banks are not strong. President Barack Obama is hoping any economic recovery will not be just based on the American consumer. Instead, according to Mr Summers, he is hoping it is going to be export oriented. "This is going to be a crucial issues going forward. One of the things that economics teaches but that economists sometimes miss is the fallacy of composition," he said. "There's a great deal of economic evidence that export led growth is good, but there's the fallacy of composition that not everybody can have export led growth, and I think that's going to be an important theme of global economic discussions going forward."

The new American economy according to Mr Summers must also be less reliant and banking and financial services sector to grow.

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