As earnings season ushers in a string of stronger-than-expected corporate profits, Tuesday was "bankageddon" for some of Wall Street's top financial institutions. Bank of America reported a record $8.8 billion quarterly loss, Goldman Sachs badly missed analysts' expectations, and even the day's banking bright spot, Wells Fargo, recorded a 5 percent drop in revenue. Three years after the Wall Street meltdown, why are banks still struggling? Here, four theories:
1. The debt-ceiling standoff is taking its toll
Blame Congress' intransigence for banks getting "hammered on concerns about the U.S. debt-ceiling," says Halah Touryalai at Forbes. If the nation's $14.3 trillion borrowing limit isn't raised by Aug. 2, the government will run out of cash to pay its bills. And as Washington remains mired in a standoff over a debt-ceiling solution, and uncertainty spreads, bank stocks are taking a beating.
2. Banks are still paying for their housing binge
If you want to understand why banks are still struggling, imagine you drank too much at a party, says Matt Koppenheffer at DailyFinance. "You then proceed to kick over the punchbowl onto a white rug... and make a pass at your best friend's wife." Now "it's time to make apologies and, more importantly, settle up with the host." That's why Bank of America just now agreed to an $8.5 billion settlement with investors in its bad mortgages. "We have seen weakness in mortgage from everyone," not just BoA, says Joseph Hogue at Seeking Alpha. Expect more "write-downs and litigation."
3. The slow economic recovery is killing banks
The big banks are actually starting to "stanch their losses," says Eric Dash in The New York Times, but they're also "reckoning with an unfortunate reality: The anemic recovery is hurting their results." The recession is technically over, but consumers are still digging themselves out of debt and unwilling to take out new loans, notably new mortgages and credit card debt. And who can blame them? "Home prices are falling again, the unemployment rate is above 9 percent, and consumer confidence has been shattered by the disappearance of more than $1 trillion of stock market wealth" since 2007.
4. Actually, the banks are stronger than they look
The economy may be "stuck in neutral," but the banks have reason to be hopeful about businesses "accelerating their borrowing," says David Benoit in The Wall Street Journal. A rise in business loans is the latest hopeful sign "that old-fashioned banking could be crawling back to life." There has certainly been "a negative news cycle surrounding the financial sector," says Matt Nesto at Yahoo Finance. But the big banks are primed for a recovery. And when it hits, "watch out."
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