The Week Ahead: Banks have a problem of perception

April 12, 2014 

There's nothing wrong with America's biggest banks. The Federal Reserve says so. The Federal Deposit Insurance Corp. says so. Shareholders say so. And the bank's financial statements say so. So why do banks remain the economic boogeymen?

Profits, people and perception are the problems at banks. Citigroup's earnings jumped 83 percent in 2013 from a year earlier. Bank of America's almost tripled. Capital One's 2013 profit growth was a laggard at 17 percent. This performance came as the U.S. economy struggled to find its footing. The U.S. GDP was up 1.9 percent last year as big banks' profits were booming.

The jump in bank profits helped fuel fatter paychecks for big bank executives. Bank of America CEO Brian Moynihan's total compensation was $13 million in 2013. That's a hefty paycheck but still well below the $18.8 million Capital One paid its CEO, Richard Fairbank, last year. (To be fair, until two years ago, Fairbank hadn't received any cash compensation for 15 years.) These pay packages help feed the notion of an out-of-touch industry. Income for the typical American household has been sliding since 2008.

Meantime, big banks have spent billions of dollars paying fines for their bad behavior in the years leading up to and including the housing collapse. Settlements worth more than $17 billion were agreed to in 2013, settling accusations ranging from illegal home foreclosures to lax trading oversight. The penalties reinforce the image of unscrupulous industry practices.

To be in banking is to be in the trust business. No fewer than five of the biggest banks in the country are scheduled to report quarterly financial results in the week ahead, including Citigroup on Monday and Bank of America on Wednesday. Earnings growth expectations are pretty low, as is Americans' trust in big banks.

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