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Today, Wells Fargo reported  record quarterly earnings of US$3.8bn, up nearly 50% on the same quarter last year. JPMorgan kicked off the reporting season last week with quarterly net profit growth of 67%. The country’s other banking giants—Bank of America, Citigroup and Goldman Sachs—shared less encouraging news, with first-quarter profits down on last year.

What all of these banks have in common, however, is falling revenues. From racy investment banks to retail-focused lenders, America’s largest banks are still shrinking. Releasing provisions and cutting costs can only go so far; a true recovery will begin when top lines start to grow again.

To date, Irving Picard, the court-appointed trustee in charge of liquidating Bernard Madoff’s former hedge fund empire, has recovered around US$2bn for victims of the fraud. His latest victory, announced yesterday, is a US$500m settlement with Union Bancaire Privée, a Swiss private bank.

Image links to full complaint (2.2MB PDF)

Three other suits filed in recent weeks could net Mr Madoff’s former clients much, much more. On November 24th, the trustee filed a US$2bn suit against UBS, alleging misconduct and “collaboration in the Bernard Madoff Ponzi scheme.” On December 2nd, a suit seeking more than US$6bn was lodged against JPMorgan for allegedly “aiding and abetting Madoff’s fraud”. Most recently, a US$9bn suit was launched against HSBC on December 5th. Announcements of all suits and settlements can be found here; UBS, JPMorgan and HSBC all deny the claims.

The trustee’s 173-page complaint claims that HSBC was “always willing to play the lapdog” to Madoff. In filling in the details, the plaintiff unravels the byzantine structures of “feeder funds” linked to Mr Madoff’s firm. Mr Picard has filed suits seeking some US$35bn in damages, and some are growing bullish on his prospects for recovery.

Update (December 9th): Another seven banks were sued on Wednesday.

America’s three key investment banks have now reported their third-quarter results. Beyond the revenues, earnings, provisions and the like, analysts are combing financial statements for details on bankers’ compensation; lower pay is seen as an important sign of cost control and, equally important, contrition in the face of public scorn.

As a percentage of net revenues, compensation ranged from 39% at JPMorgan to 43% at Goldman Sachs in the first nine months of the year. The year-on-year decline at Morgan Stanley was especially large, dropping from 60% last year to 42% so far this year. Absolute pay has fallen at all three banks, with a particularly steep 21% drop at Goldman Sachs. In terms of the average pay per employee at Goldman, the decline is an even more severe 30%. Still, few would consider an average wage of more than US$370,000 for nine months’ work a sign of major sacrifice.

Level 3 assets at large American investment banks may have “bottomed out”, according to a new report by Moody’s. The stores of these illiquid, difficult-to-value assets often housed many of the most toxic securities that battered banks’ balance sheets during the credit crunch. Any decline in Level 3 assets is considered positive for banks’ credit profiles, Moody’s claims. (For previous coverage of Level 3 assets, click here.)

Somewhat ominously, the ratings agency adds that further falls in Level 3 inventories are unlikely. Although risky and illiquid, these securities feature “attractive yields and wide bid-offer spreads.” Under pressure to boost shareholder returns, it will be difficult for bankers to shun them completely.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Five billion dollars is a lot of money. Even for a bank of JPMorgan’s size, with some US$2trn in assets, its latest quarterly net income, US$4.8bn, represented a record haul for the group. It was also a 76% jump from earnings in the same quarter last year.

The announcement of the Wall Street giant’s second-quarter results, on July 15th, initially stunned the markets, which were expecting more modest earnings. But it didn’t take long for analysts and investors to pick through the financial statements and find reasons to be less impressed by the headline result. Subsequent earnings announcements from fellow financial heavyweights Bank of America and Citigroup, on July 16th, followed a similar pattern.

Read more at Financial Services Briefing: “Core concerns” (July 16th)

As in previous quarters, American investment banks continued their remarkable run of profitable trading days in the first quarter of this year. Bank of America, Citigroup, Goldman Sachs and JPMorgan recorded positive net trading revenues every day in the first three months of the year. Morgan Stanley, a laggard by comparison, lost money on only four days during the quarter. (Citigroup does not routinely report its daily trading results, but mentioned that it had no losing days in the first quarter.)

“Like peering through a grimy factory window, trading revenue histograms can provide a few clues as to what is happening down on opaque trading floors,” Moody’s writes in a recent commentary. Normally, a lack of negative trading days would be a positive sign of the “strength and diversification of customer franchises and risk management expertise,” Moody’s claims. But the stellar performance of banks’ trading operations is, perversely, becoming a risk as regulators and investors cast aspersions on the motives and methods that these market makers employ to generate bumper profits on their own accounts.

In a “noteworthy sign of returning liquidity to capital markets,” a report from Moody’s highlights a drop in Level 3 assets (L3) at the biggest American investment banks in 2009.

These assets cannot be valued easily because they are generally illiquid. Many of the credit boom’s newfangled financial instruments—subprime-linked securities, collateralised debt obligations and the like—were classified as L3 and marked to internal models when reporting their values on balance sheets. Subsequent write-downs of these assets called into question the judgment and competence of bank executives.

In general, creditors now prefer banks to hold less L3, with outright disposals preferable to transfers into the Level 2 or 1 categories. As a percentage of tangible common equity, cash L3 at five lenders with large investment-banking operations fell sharply in 2009; “good news for creditors,” according to Moody’s. (L3 derivative positions were excluded from the analysis due to inconsistent disclosure practices.)

Despite the decline as a share of equity, the absolute value of L3 at Bank of America and JPMorgan remained relatively flat in 2009. Bank of America reported the largest increase in value of L3 (US$9.4bn) in the sample, while JPMorgan was the only bank to disclose a net transfer into the L3 category. Morgan Stanley reported the largest absolute decline in L3, trimming its balance by some 38% during the year, largely through disposals.

For America’s biggest banks, the latest customer satisfaction survey from the University of Michigan makes for unpleasant reading. Although the overall level of satisfaction with banks has remained steady over the past 12 months, this is largely down to smaller banks and credit unions improving their scores. Individually, the country’s three largest banks—Bank of America, JPMorgan and Citigroup—have all seen their satisfaction scores fall. Wells Fargo is the only top-tier lender to record a higher score in the latest survey, which the poll’s administrators put down to its takeover of Wachovia, traditionally a strong performer when it came to customer service.

As regulators devise new rules to discourage financial institutions from holding risky assets and trading in exotic securities, large universal banks are scrambling to shore up the core consumer deposit, savings and loan services that are the focus of the University of Michigan’s survey. On this front, there is much work left to do.

On Friday, much was made of the fall in compensation as a share of revenue in JPMorgan’s latest quarterly results. With other large American banks reporting results this week, might we see a similar pattern? Are bankers so chastened that they are accepting lower pay?

Yes and no. Michael Mayo, a financial services analyst who testified at the Financial Crisis Inquiry Commission last week, explained how a lower share of pay in relation to revenues may not tell the whole story. Compensation at banks has risen moderately as a share of revenue in recent decades. But when loan-loss provisions are taken into account, recent pay packages appear a lot more generous. According to FDIC data, compensation as a share of revenue at commercial banks is the highest it’s been in nearly 60 years, after accounting for provisions.

When will the write-downs end? Analysts are feverishly at work on loan-loss models in hopes of finding out. Accrued Interest came up with a nifty shorthand for gauging loss reserves—plugging the details of loan exposures from big American banks’ latest quarterly results into the losses forecast by category by the Federal Reserve in its spring “stress test”. These forecasted losses are then compared with the write-downs and provisions already taken. “The Fed’s guess is as good as any, and the exercise should be illustrative of how close we are to the end of loan loss provisioning” the blog notes.

The chart compares the loan-loss coverage of Wells Fargo (green bars, representing write-downs and provisions) versus the upper and lower bounds for loss estimates for the Fed’s “baseline” (blue bars) and “adverse” scenarios (red bars). Under all but the most sanguine scenarios, more capital must be set aside to cushion against future losses. The same holds true for Bank of America and JPMorgan, with details in the full post.