When You Get Right Down To It, Bank Earnings Still Kind Of Stunk

Sizing up the competition is Wall Street's all-time favorite parlor game — especially during earnings season.

Now that Q2 results have rolled in, the wait is over.

Big banks posted big numbers last quarter, with sales and trading revenue exceeding expectations and wealth advising continuing to grow.

It was a turbulent quarter for traders. The market went on a tear in May and the S&P and Dow hit record highs. Of course, bonds got crushed on the news that the Federal Reserve might begin to taper its asset purchase program. Emerging markets saw record outflows. It was ugly few weeks — and earnings announcements made sure to mention it.

From Goldman's Q2 2013 report:

Although Fixed Income, Currencies and Commodities Client Execution operated in a generally favorable environment during the first half of the quarter, market conditions across products became more challenging during the latter part of the quarter, as interest rates and market volatility increased.

Still there was no face-melting European Q2 crisis like the last two years, so traders had a fighting chance. That's why most of this quarter's smack talk will derive from sales and trading revenue, proving who got what right in Q2. JP Morgan led the pack there with $5.3 billion in trading revenue (Morgan Stanley and Goldman Sachs both clocked in at around $4.3 billion).

In terms of growth, Morgan Stanley saw a 32% jump in trading revenue between Q2 2012 and Q2 2013 —they were the sickest man on the Street before — Citigroup won the silver medal at 26.1% and JP Morgan the bronze with 18.5% growth.

Of course, this doesn't tell the whole story. We're comparing this quarter to Wall Street's business during its poorest time in recent history. Now the economy is slowly coming back and shareholders can start to expect more. To get the full picture of how well banks are doing on a long term basis, you have to look away from the growth in sales and trading to a more far-sighted metric — return on equity.

That's where shareholders really find out if a company is making a profit and generating value on their behalf.

Wells Fargo had the largest return on average shareholders' equity (ROE) at 14%. JP Morgan and Goldman Sachs were right behind, with 13% and 10.5%, respectively.

But as you can see in the chart above, that's nothing compared to what they were doing before the crisis in Q2 2007. In the good old days, Goldman had an ROE of 31.2%, Morgan Stanley came in second with an ROE of 27.5% and the bronze medal went to JP Morgan at 26%.

So while the nation's six largest banks amassed $23 billion in Q2 profits, which may further convince regulators it's time to impose stricter capital controls, the business still has a long way to go before it's all "Greed is Good," limos, and boiler rooms again.