No joy on Wall Street as six biggest banks earn $63 billion

Frosted Cookies

When JPMorgan, which earned the most of any of the six banks over the four quarters, decided to thank employees for their performance this year, it sent 161,680 individually wrapped buttercream-frosted, chocolate chip, oatmeal-raisin and sugar cookies to retail branches and call centers in the U.S., U.K., Philippines and India.

The gifts were delivered in May, two weeks after CEO Jamie Dimon announced what he called an “egregious” trading loss. The cost of the cookies, $130,000, equals about what the lender earned in 3.4 minutes in the second quarter.

“We celebrate in a very low-key way,” said Gordon Smith, JPMorgan’s co-CEO of consumer and community banking.

JPMorgan gets more attention for the trading loss than for its profits, Schlosstein said, and “there’s an element of unfairness to that.”

Talk of unfairness to banks so soon after the financial crisis confounds Michael Greenberger, a former director of markets at the Commodity Futures Trading Commission.

“When the banks say, ‘We’re doing very well but not getting a return on our capital,’ it’s completely incomprehensible, and it’s angering to the average American,” said Greenberger, who teaches derivatives at the University of Maryland’s law school. “They’re making billions of dollars in profits. That’s the bottom line.”

Profit Records

The $63 billion profit for the 12 months ended June 30 was exceeded only in calendar years 2005 and 2006, when combined net income was $68 billion and $83 billion. While the latest figure is about half of what the six banks earned in 2006 when firms purchased during the financial crisis are included, they are still among the nation’s biggest money-makers. Fewer than 20 companies, including the banks, made $10 billion in the four quarters though June.

The six financial firms will have combined profits of $9.9 billion in the third quarter, $17.4 billion in the last three months of the year and $75.8 billion in 2013, according to estimates of analysts compiled by Bloomberg. The firms report third-quarter results later this month.

‘Big Problem’

“I’m not surprised,” said Andrew Lo, a finance professor at the Massachusetts Institute of Technology’s Sloan School of Management. “Our country and our government have spent a lot of money stabilizing the banking industry.”

Lo, who’s also chairman of money-management firm AlphaSimplex Group LLC in Cambridge, Massachusetts, said that government support, including TARP and the Federal Reserve’s quantitative easing, is “doing what it’s supposed to.”

Profit tells only part of the story, said Chris Wheeler, an analyst at Mediobanca SpA in London. What strikes closer to Wall Street’s core is return on equity, a measure of how efficiently a company generates income, he said.

“The big problem is the return they’re making on shareholders’ equity,” Wheeler said.

Banks increased leverage, a measure of how much they’ve borrowed, to boost returns before the financial crisis. Morgan Stanley’s leverage, or assets-to-equity ratio, exceeded 33 in 2007, meaning that a 3 percent drop in the value of the New York-based firm’s assets would have wiped out shareholders. The ratio has stayed below 15 since the third quarter of last year, bringing return on equity down with it.

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