Street to Log Best Quarter Since Crisis

According to the WSJ, securities firms are set to log their most lucrative financial performance since the credit crisis erupted. The article mentions that the usual suspects such as JP Morgan, Goldman Sachs, Morgan Stanley and Bank of America are banking huge profits. The best part is, the article says that "instead of relying on risk and leverage to drive profits," they are deriving profits from trading and underwriting. Apparently, whoever wrote the article doesn't seem to know that the definition of trading is "taking risk." Sure, you can call it market making, but you're still risking capital to make money from buying, selling, and hedging financial instruments, particularly if we're talking about derivatives trading. Furthermore, the article goes on to say that the record underwriting fees that the banks collected in the quarter were mostly from underwriting shares for banks (i.e. themselves) that were forced to raise capital to replenish their beaten down coffers. The article doesn't even mention all of the cheap financing that the government has thrown at them to keep their financing costs down, a huge oversight, in my opinion. If you could borrow money at zero percent from the government, you'd be having a banner quarter too. Too bad your bank just raised your credit card fees, jacked up your rates, cut off your credit and won't let you refi your house. So thoughtful of those banks to pass all those savings along to the consumer right?

If banks think that continuing to underwrite their own equity and debt offerings ad infinitum is a sustainable business model, then they are sadly mistaken. Eventually, investors are going to figure out that whole dilution business and not participate in the 50th capital raising plan that Bank of America or Citi, for example, try to shove down investor's throat. The article cautioned about one time accounting issues that are likely to obscure the results, but as usual, I'll be waiting for the actual earnings announcement and the 10-Q release before I make any judgements about the financial health of our financial institutions.