Is there any reason an insolvent bank cannot be profitable short-term?

[Kurt_and_Hunter]

Would anyone like to discuss/theorize/report on the relationship between quarterly operating profits and ultimate institutional health?

(The question does not suggest that Wells Fargo or Goldman are insolvent. Just that the reason we have rules about banking is to prevent certain behaviors that are potentially profitable. Since banks retail money and--between Fed and Treasury--their wholesale cost for money is at or below zero these days it would be hard not to show a profit, but I don't know that it follows that a bank's reserve situation is solid in the face of potential portfolio devaluation. Or maybe it does follow... there are doubtless wrinkles of which I am unaware.)

[dmallind]

1. Not really.

P&L statements on a quarterly or even annual basis are only tangentially connected to long term solvency or financial health. Simply put P&L's, also called income statements or operating statements etc, are a measure of whether you got more revenue than expenses. If you have high revenue or cut expenses, you can be floundering and still have a great P&L. Balance sheets may give a more accurate picture of solvency, but can be equally misleading.

BTW look for "ongoing operations" as a buzzword for P&L statements to get a bit more insight. That would exclude such exceptions and one time events as bailout money or charges for restructuring and so on. It is still possible to be in dire straits if you have a good operating income from ongoing operations, but given enough positive statements of such a kind in a row it becomes less and less likely.


Having said that at least as far as Wells Fargo goes ( I don't follow GS at all) their profit is legit, and not dependent on one time influxes or revaluations.

[Kurt_and_Hunter]

2. good answer

[PBS Poll-435]

3. Any company in any industry can have short-term profits and an absolute shite

Balance sheet.

[LittleBlue]

4. If the banks don't properly recognize losses, those profit statements are bogus.

Yeah, I could look pretty profitable too if all my losses went unrecognized and I just showed gains.