by Caitlin Kenney

Earlier this week, Adam Davidson told us the earnings reports to watch this week would come from weaker financial institutions like Bank of America and Citibank. Now that these numbers have been released, we're left wondering what to make of them.

While it's clear that some banks are moving out of danger zone, overall the banking system as a whole is still struggling. Yes, banks are posting profits, but their numbers are nowhere near 2008 levels. Bank of America CEO Ken Lewis acknowledged these difficulties when he announced his bank's latest figures: "Difficult challenges lie ahead from continued weakness in the global economy, rising unemployment and deteriorating credit quality that will affect our performance for the rest of the year and into 2010."

 

Credit quality is a special concern for many of America's biggest banks. As the fear of big institutions being unable to repay loans subsides, concern is growing over lending at the consumer level. JP Morgan says it has set aside more than $30 billion to cover future losses from credit card, mortgage and home equity losses. Meantime, Bank of America has said it can't collect payments on 11.7 percent of its $170 billion credit-card portfolio. Bloomberg reports:

Card services swung to a $1.62 billion loss from a $582 million profit last year as more borrowers fell behind on payments. Earnings at the deposits business declined 59 percent to $505 million and the net interest margin, the difference between what it pays on deposits and the rates earned on loans and securities, narrowed to 2.64 percent from 2.7 percent in the first quarter and 2.92 percent in the year-earlier period.

As for Citigroup, CEO Vikram Pandit says "our most significant challenge now remains consumer credit." The bank set aside $12.68 billion to cover loan losses during the second quarter of this year.