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It’s not often that the quarterly results from one bank can be used to gauge the health of the entire financial sector but last week when JP Morgan issued their earnings report, they provided several clues about the overall health in the banking industry. They reported earnings that exceeded analyst expectations which is usually enough to make analysts and investors happy. However, the stock prices for banks large and small were hit hard as a result of the mixed news in the earnings report.

JP Morgan’s results are considered an indicator for the banking sector and it’s somewhat safe to assume that the areas where JP Morgan is struggling are also areas of difficulty for other banks. Banks generate profits and losses from several different lines of business and a bank the size of JP Morgan is much more than a simple lender and depository for client assets. The bank earned over $3 billion for the quarter, but over half of those earnings were a result of investment banking business. Here are some areas that are making it difficult for banks to fully recover from the financial crisis that started a few years ago.

Commercial Banking: This is the arm of a bank that makes loans to business and small, regional banks rely on this type of business much more heavily than large, national banks. JP Morgan saw their income fall to only half of what it was in this area compared to a year ago. When you hear about banks increasing loan loss reserves to account for loans that they no longer consider collectable, commercial real estate loans account for a big portion of this number.

Consumer Banking: This is the type of banking that serves individual bank customers and for JP Morgan, the consumer banking arm reported a loss of nearly $400 million for the quarter. Consumer loans and credit card loans are included in the consumer banking number and with almost 10% of credit card balances outstanding being considered impossible to collect, credit card losses will be a continuing roadblock to profitability.

Investment Banking: This is the healthiest type of banking business happening right now. Investment banking includes managing new stock issues and bond offerings, inventing new types of securities to be traded, and making money from trading in the global investment markets. This type of business is strong for big banks right now because many former investment banking giants like Lehman Brothers and Bear Stearns are no longer operating.

While these numbers are telling, people outside of the investment world don’t pay much attention to the sources of bank profits. What is telling, however, is that the Chief Financial Officer at JP Morgan Chase stated on a call with analysts that he thought conditions surrounding bad debt and loan losses could easily get worse before they start to improve. No wonder there’s resistance to the bonuses bank executives are paying themselves—we’re not out of the woods yet!

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