CAPITAL: No End to the Banking Recession Just Yet

We are about at the end of the first wave of bank earnings reports for the fourth quarter of 2009 and I am looking for numbers that point to an end to the banking industry recession.

I don’t see those numbers yet.

The three banks to look at are JP Morgan Chase, Citigroup, and US Bancorp, their numbers are choppy at best. The four key metrics are noninterest income, interest income, deposit growth and credit provisions. An end to the banking recession would be marked by high deposit growth, a return to growth in interest income, higher noninterest income, and modulating credit provisions.

At the three banks, the year-over-year numbers are all over the place. Consider JP Morgan Chase’s numbers. Noninterest income at JPM was 218% higher on a year-over-year basis, but interest income fell 11%. Deposits also fell to the tune of 32%, although credit provisioning was essentially flat. So what’s the verdict? Credit returns have not returned and deposits aren’t growing, and that means the bank is not getting super-cheap capital to play with and bolster its interest margins. The flat provisioning is good, but the other positive signs aren’t there to frame the benefit from flat provisioning.

USB is in a similar situation. USB had 31% growth in noninterest income, but a 16% drop in interest income. Deposits grew 21%, although provisions were increased 9.9%. In other words, USB turned in a mixed bag of financial performance.

And Citigroup? Typical of that bank, its results were even more radical. Noninterest income at C boomed 107% year-over-year, but interest income slid 9%. Deposits grew a healthy 13% — and that was offset by credit provisions jumping 11%.

An end to the banking recession? Richard Davis, CEO of US Bancorp, said during this morning’s earnings call that the bank was “getting close to inflection,” meaning that there will only be “nominal increases in provisioning” in coming quarters. That would imply the end is near.

Near, but not here.