This brand-new earnings season has been a very good one for the banking sector so far. Wells Fargo reported $5.6 billion in earnings yesterday for the fourth quarter, a new high mark for that bank. That enabled Wells Fargo to overtake JP Morgan, formerly the nation's most profitable bank, which earned "just" $5.3 billion in the quarter.
JP Morgan, though, reported those earnings despite spending $23 billion in legal settlements in 2013. Despite those expenses, JP Morgan recorded $17.9 billion in earnings for the year.
At the same time, those earnings are a little misleading. For 2013 as a whole, more than $2 billion of Wells Fargo's earnings and more than $5 billion in JP Morgan's earnings derived from loan-loss reserves, money that had been put aside during the financial crisis to cover future losses if the downturn continued. Now that the economy is recovering, that money can be returned to the banks' general coffers - and counted as earnings.
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