But when first-quarter results start rolling in next week, investors who have fueled a blistering rally in bank shares will be looking for signs that banks are gearing up to actually make money, rather than losing less.
Most analysts are wary of the continuing toll of consumer credit losses, mainly in credit cards and mortgages, at major U.S. banks. But they also see signs of improvement as the industry emerges from credit woes that began nearly three years ago.
Earnings have stabilized but we're still at the stage of less-worse for these banks, said Ralph Cole, portfolio manager at Ferguson Wellman Capital Management, which owns JPMorgan shares. They're dealing with problems as they have to, and as they have the financial means to do so. They're earning their way out.
In the first quarter, banks particularly benefited from lower funding costs amid an easing credit environment, which fed margin expansion.
On Tuesday, Wells Fargo Securities raised large-cap U.S. banks by a notch to market weight, citing positive economic data and more clarity on asset-quality trends. Analysts picked Bank of America and PNC Financial Services Group Inc
Analysts' newfound optimism has been matched by investors. The KBW Bank Index <.BKX> rose 21.7 percent in the first quarter, far better than the 4.7 percent increase in the broader S&P 500 Index <.SPX>.
Citigroup shares posted the biggest gain among the top banks, up 22 percent.
Bank of America and Wells Fargo & Co
Analysts at Keefe, Bruyette and Woods forecast first-quarter net profit of $2 billion for the banks they cover, compared with a loss of $4.4 billion in the 2009 fourth quarter.
But they still expect 38 percent of those banks to report losses.
Of course, improvement among the top banks will be anything but uniform. Ranked by assets, Bank of America is No. 1, followed by JPMorgan, Citigroup and Wells Fargo.
JPMorgan, which is expected to report earnings of 65 cents per share against 40 cents a year earlier, is widely seen as the strongest of the four biggest U.S. banks, having weathered the financial crisis better than most. Wells Fargo is projected to report 41 cents per share, compared with 56 cents a year ago, according to analyst surveys by Thomson Reuters I/B/E/S.
On the rockier side of things are the two biggest bailout recipients among the top banks: Bank of America is projected to report earnings of 8 cents per share, down from 44 cents a year earlier, and Citigroup is seen breaking even after losing 18 cents a share a year ago.
JPMorgan's the only one able to look forward, while Bank of America and Citi are still looking inward, trying to fix things, Cole said. That's an ongoing process. JPMorgan has the pieces that they want; now they have to figure out a way to grow.
Citigroup could end up reporting a slightly better per-share result, while Bank of America could be slightly weaker, according to Reuters Starmine, which weights estimates according to analysts' track records.
Given the healthy run-up in their stocks in the first quarter, Citigroup and Bank of America in some ways have the most to prove. But their shares are still trading under book value, while JPMorgan and Wells Fargo shares trade above book value.
Citigroup and Bank of America still look relatively less expensive, said Michael Holland, chairman of Holland & Co, a money management firm that owns bank stocks, including JPMorgan. You still have some undervaluation.
While many banks look healthier than they did a year ago, consumer credit and commercial real estate losses persist, and analysts agreed that a full recovery is not likely until next year at the earliest.
With all these banks, we see a path back toward profitability, said Jefferson Harralson, a Keefe, Bruyette & Woods bank analyst. But investors could still be disappointed.
Investors, in turn, may step back from the 2010 run-up in bank stocks if U.S. banks report disappointing first-quarter numbers.
Expectations have been up, prices have been low, Holland said. We should look for some negative surprises.
(Reporting by Joe Rauch in Charlotte and Maria Aspan in New York; editing by John Wallace)