Is the Banking Industry looking up?

To some sources it very well could be. Some banks have reported that they have gained a lot of ground when the First Quarter reports came out. Several banks have recently seen an upswing, among those are JP Morgan, Goldman Sachs and recently, the Citigroup. According to Citigroup, they did not anticipate such a big turnaround and it was very refreshing to report that the beat out expectations. It made a $1.6 billion gain compared to an absolutely jarring $5.1 loss last year. So if you’re at home calculating this, then you probably came to the conclusion that things are indeed getting better, right? Don’t hide that calculator just yet. "We had our best overall quarter since the second quarter of 2007," chief executive Vikram Pandit said.

While indeed we would like to give you all the good news you can handle we have to temper this one a bit to be truthful. Apparently, a pre-arranged deal with preferred shareholders had the Citigroup committed to handing out $2.7 Billion in dividends. Calculate some more and we’ll come to just about a $1 Billion loss. It is difficult to understand why so many of these banks have chosen to commit to deals they have no business to be doing. First there was that Irish banker, Fingleton who had a pre-arranged deal with his bank for 1 Billion Euro bonus despite the financial crisis. Then there was he big bailout problem in the US and the pre-arranged bonus to its executives rendering the bailout money basically a bonus package. And now this pre-arranged deal with preferred shareholders that turn a profit into a loss. If you look into the heart of the problem of the banking industry, it would easy to see that the basic problem is that the banks have come into agreements that they cannot handle. When it comes back to them to bite them in the ass, people suffer.

It seems however that they still haven’ learned their lesson with all these pre-arranged deals going on while everybody else outside is panicking. "Of course the fact that all of these have had such a strong first quarter has led to some tentative hopes that perhaps the banking sector crisis is bottoming," said Richard Hunter, the UK head of equities at Hargreaves Lansdown. Citigroup received a $45 Billion bailout money and now this. Hunter is tentative to jump into the “things are getting better” bandwagon probably because he is a smart man and know that things are still as bad as they were last year. He also probably knows that there are other pre-arranged deals that would undermine any gain that the banks are having. The Citigroup’s gain also does not reflect the fact that it cut out around 70 thousand of their employees. Whatever gain the Citigroup had could not be directly attributed to their own great decision-making and actions. Their shares gained mostly because of the government help given to them. "It was slightly better than anticipated, but we probably underestimated how much government support would be a wind at their back," said Michael Holland, founder of Holland & Co.