Wednesday morning kicked off with news that Wells Fargo (NYSE: WFC) saw third-quarter earnings rise to $3.24 billion (56 cents per share) from $1.64 billion (49 cents per share) last year. The results handily trounced the consensus estimate of 37 cents per share.

Wells Fargo also reported revenue of $22.47 billion , which was better than both a year ago and the consensus estimate. The company stated that net charge-offs for the quarter came in at $5.1 billion (2.5% of average loans), compared to $4.4 billion (2.11% of average loans) in the second quarter. The bank did note that it expects credit losses to continue increasing, but at a slower pace thanks to a slowing of the pace of deterioration.

JPMorgan Chase (NYSE: JPM) posted earnings Thursday. In a surprise to analysts, who had been expecting a break-even quarter, JPM reported earning 7 cents for the fourth quarter.

While the report showed a 76% decline from the previous year, the news pushed the stock to early gains in the face of a drop in the Dow.

Typical of the lack of conviction in the markets, JPM gave up early gains. Subsequent trading restored the stock to the positive column before it succumbed to a late-day sell-off that shaved more than 6% from its market value.

The mid-morning decline in JPM occurred as Bank of America (NYSE: BAC) plummeted to a new low at $7.50. BAC is sagging under the weight of absorbing Countrywide and Merrill Lynch, both of which have proven more difficult to digest than earlier thought.

Bank stocks in general are under heavy selling pressure after Federal Reserve Chairman Ben Bernanke declared Wednesday that billions more will be required to restore stability to the nation's (and the world's) banking system.

Bank of America (NYSE: BAC) says it will cut 35,000 people over the next three years. Part of that has to do with its merger with Merrill Lynch. Part is because of a faltering economy.

The press release about the plan is a little odd. It does not say which parts of the company will be cutting and when they will cut. It is as if the number of people losing jobs was pulled out of thin air.

Bank of America made this comment in its press release about its plans: "Details as to specific reductions in communities or by business line have not been determined." In other words, the financial firm does not know much other than the body count.

The announcement may be a bit of a head fake. Stocks in the large money center banks are falling rapidly again. Shares in the major US financial firms are down between 25% and 50% over the last 90 days. Wall St. may be getting worried that Bank of America will be the next Citigroup (NYSE: C), a candidate for a big slug of cash and more government scrutiny.

By saying it will cut costs to the bone, Bank of America may just want investors to know that it has a reasonable future due to cost cuts. Even if a boatload of write-offs are coming.

Douglas A. McIntyre is an editor at 247wallst.com.

Most analysts believed that Bank of America (NYSE: BAC) would cut about 10,000 jobs in its consolidation of operations with Merrill Lynch (NYSE: MER) which it bought earlier in the year. That would be enough people to hit the promised cost saving for putting the two firms together. It is a lot of people out of work, but not a blood bath.

Well, it looks like the blood bath has come and no one appears to have expected it. According to CNBC, "Bank of America could end up cutting 30,000 jobs as it moves to absorb Merrill Lynch, three times as many as previously estimated."

Did Bank of America mislead its employees, the press, and investors? Perhaps, but it may have done so for all of the right reasons. Predictions now are the B of A will lose a lot more money than most observers expected a month ago. It faces huge write-offs in its real estate and consumer credit portfolios. That may mean the firm could be faced with having to raise more money and dilute current shareholders. It could also hurt the bank's chances of maintaining its dividend and current share price level which is already down from a 52-week high of $47 to just above $14.

The new layoffs are not good for the poor people who will be hitting the exits, but the news may add weight to the impression that bank earnings for the current quarter are falling apart fast.

Douglas A. McIntyre is an editor at 247wallst.com.

In the accounting business, helping clients improve earnings is not that hard, if you can change the rules. Banks would like the boring green eye-shades to alter how they value assets on bank balance sheets, a pretty nifty way to cut losses without doing anything meaningful to balance sheets.

According to Reuters, "Fair value accounting, which requires assets to be valued at market prices, has been blamed for billions of dollars in write-downs by some U.S. banks and policymakers."

Yes, but wouldn't all their investors like to see how badly banks were managed? How big the gambles were on toilet paper assets like mortgage-backed securities?

While it is fine to sweep the dirt under the rug, the rules are the rules and have been the rules for some time. Changing them now would cause a dislocation in reporting, For 2008, losses may be accounted for under one set of criteria. Next year, that may change. How do shareholders see the actual difference in earnings from one year to the next if the way that assets are valued is changed?

It is always nice to re-write the rule book. Why shouldn't a basketball player who is active now be able to score 100,000 points because he gets credit for a point every time he blows his nose? Just a year or so ago, he actually had to put the ball into the hoop.

Douglas A. McIntyre is an editor at 247wallst.com.

New York Times Chief Financial Correspondent and Columnist Floyd Norris, appearing on the "Charlie Rose" talk show Monday night on PBS, offered an insight that sort of summed up the financial crisis, the need for a rescue bill, and the reason a considerable portion of the American public doesn't like the rescue package.

Floyd Norris said: "At times it does appear that Wall Street is saying 'Bail us out or the U.S. economy is ruined.' And, if you're a citizen of the U.S., it's perfectly normal to be upset and angered by that. The problem is, what Wall Street is saying is true."

No time for perfection

The rescue bill, even the expected, revised rescue bill by Congress, will not be perfect. And yes, it will help some on Wall Street, including (unfairly) those who 'gamed' the system, or whose business mistakes, dubious securitization frameworks, or just plain greed helped create the crisis in the first place. But the nation does not have the luxury of taking six months to compose and pass a 'perfect' bill. The nation needs a rescue package, imperfect though it may be, to stabilize the financial system. And it needs it now.

Should you, the typical investor be upset about that? Sure, it's o.k. and it's a natural response to be upset, but don't let that emotion lead you to believe the nation or the financial system would be better off without a rescue bill; it won't be. And it's not possible to prevent Wall Street institutions from being involved in the solution -- at this time-pressured, critical juncture, they have to be. As The Times' Floyd Norris noted, Wall Street knows it, we know it, everyone knows it. So accept it, and move forward with the necessary work of getting a rescue plan in place.

Financial stocks, which have been bloodied over the past few weeks, rallied today on the plan announced by Treasury Secretary Henry Paulson for the government to acquire troubled bank assets. The recently announced ban on short-selling helped the shares as well.

Goldman Sachs Group Inc. (NYSE: GS), down 40 percent for the year, rose $20 to $128 in mid-morning trading. That's about an 18 percent rise and comes a day after the stock hit a 52-week low. Remember, Goldman recently reported a 70 percent decline in third quarter profits which given the billions of write-offs taken by its competitors is almost miraculous. Maybe Paulson decided the government needed to suck away the bad investments from their balance sheets when he saw pressure building on his old firm.

Today's 25 percent raise in Morgan Stanley (NYSE: MS) may alleviate some of the pressure on the investment bank to find a merger partner to avoid the same fate as Lehman Brothers Holdings Inc. and Merrill Lynch & Co. (NYSE: MER). Shares in the New York-based company rose $5.28 to $27.83. Morgan Stanley reportedly is mulling a tie-up with Wachovia Corp. (NYSE: WB).

Even Washington Mutual Inc. (NYSE: WM), another company that might get a multi-billion buyout, got a boost, soaring 81 cents to $3.80. That's an increase of more than 27 percent. Of course, the 52-week high is $39.25, so any celebration is muted.

The joy from shareholders about the Paulson buyouts is palpable. Taxpayers are more sanguine. The one thing I remember from Economics 101 -- where my professor used to always use marijuana joints in his lectures about supply and demand -- is that every transaction needs a buyer and seller. What makes the government think it will be any more successful in unloading the toxic paper than the private sector? I just don't see who is going to buy the stuff until there is a major turnaround in the housing market which may not happen for years. Even then, turning a profit will be a challenge.

Goldman Sachs Group Inc. (NYSE: GS) is cracking down on how its employees can waste their time while they are at work.

According to Dealbreaker, the top investment bank has blocked Facebook and prohibits workers from posting comments on the snarky Web site. The incident is so noteworthy that the gossip blog has a flashing siren graphic above its post on the topic.

"I'm sure the lot of you are going to argue that the vast majority of financial firms have long blocked access to the social networking site, but Goldman's supposed to be above such pedestrian measures," the blog says, adding that Chief Executive Lloyd Blankfein used to not care about such things as "as long as you're kicking ass (by lying about level three assets)."

Fair enough but times are tough on Wall Street. Investment bankers are scrambling to hold onto their jobs as the credit crunch shows no signs of easing. Nannies who used to care for the children of Wall Streeters are finding themselves unemployed. I am sure the strippers at New York's "gentlemen's clubs" are hurting too.

Even Goldman, the best run of any Wall Street bank, is not immune. Its shares are down more than 25 percent this year. Maybe Blankfein needs to remind Goldman's employees that they should be grateful to have jobs at a time when banks are laying off tens of thousands. They are plenty of eager people who could live without recreational Internet surfing who would love to take their place.

Lehman Brothers Holdings Inc. (NYSE: LEH) Chief Executive Richard Fuld is running out of rabbits to pull out of his hat.

The troubled Wall Street bank, which reportedly is set to take a $4 billion write down in the third quarter, is desperate to raise capital. The Wall Street Journal says it's shopping around its investment management business, which includes Neuberger Berman. During the second quarter, the business reported net revenue of $800 million, down from $1 billion a year earlier. Its assets under management were $277 billion. Though these results were hardly spectacular, they stood in contrast to the Capital Markets business, which reported negative revenue of $2.4 billion.

Selling the asset management business would bring in between $8 billion and $10 billion, according to analysts cited by the Journal. Lehman's market capitalization now stands at about $10.4 billion thanks to the 77% decline in the stock price this year.

"Any change in the unit's ownership structure would be bittersweet for Lehman," according to the Journal. "The division has been a strong performer ever since Lehman bought it in 2003, holding up well despite the mortgage crisis. While a sale would give Lehman a cash infusion, the investment bank would lose a steady source of revenue."

Lehman acquired Neuberger for $2.6 billion in 2003, and some unhappy Neuberger executives are eager to dump their shares, the paper said.

Not all investors, however, believe that all hope is lost. Lehman's shares rose Friday on a report that billionaire George Soros boosted his stake in the company.

If the sale goes through, there is no way that Lehman will be able to remain independent.

Want a classic example of how the real estate slump is affecting not only the construction industry and home owners, but also states and municipalities, as well?

Consider the plight of the nation's largest city, the City of New York.

Wall Street's mortgage losses have ballooned to such a degree that some firms may pay small or no taxes for years, Bloomberg News reported. That's right: no taxes for years.

Rising tax revenues, no more

For much of the current decade, indeed for much of the 1990s as well, the city could count on rising tax revenue from Wall Street firms -- based on increased securities industry business -- as a starting point for the city's budget. Not now: the city, which derives about 20% of its revenue from Wall Street businesses, is projecting a decline in revenue from Wall Street firms -- a contraction that is expected to widen the this year's $1.5 budget deficit in fiscal 2009 to $2.3 billion next year, fiscal 2010, and then to $5.96 billion in fiscal 2011 budget deficit, Bloomberg News reported. The city's budget for fiscal 2009 is $59.1 billion.

The Wall Street recession has put the social service goals of Mayor Michael R. Bloomberg on hold, for the most part. Bloomberg has already asked city department and agency heads to implement a 6.4% spending cut; he will likely ask department heads to identify other cost savings of up to 3%, should revenues continue to come in below projections.

It was just a matter of time. People with poor credit have been defaulting on mortgage payment in large numbers for more than a year. Now the problem has moved to homeowners with reasonably good credit.

According to The New York Times, in April "delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent" from a year earlier.

The problem is going to get much, much worse. Many mortgages held by people with good credit have interest rates resetting at higher prices. The trouble is deeper than that. Higher energy costs and falling employments have a leveraging effect on the overall ability of many homeowners to keep up with their payments.

All of this means that write-downs of asset by big banks and brokerage firms may only be in early stages. The IMF has estimated that total write-offs among banks due to mortgage problems will hit $1 trillion. By most estimates only $400 million of that has shown up in earnings reports.

For investors in bank and brokerage stocks, the implications are that these firms will lose more money and have to raise more capital to bolster their reserves. That means more dilution.

Bank stocks have much further to fall.

Douglas A. McIntyre is an editor at 247wallst.com.

Shares of JPMorgan Chase & Co. (NYSE:JPM) soared today after the New York-based bank reported second quarter results that were not as lousy as expected.

They were terrible of course. Net income fell 53% to $2 billion, or 54 cents a share, ahead of the 44-cent average estimate of analysts surveyed by Bloomberg News. Net revenue fell 3% to $18.4 billion, beating the $16.6 billion average Bloomberg estimate.

The results, though, underscore how well the company has fared under the leadership of CEO Jamie Dimon.

Here are some highlights:

• Investment banking fees were $1.7 billion, their second highest quarter ever.
• Net income in commercial banking rose 25% to $355 million.
• Net income was a record $425 million in Treasury and Security Services, up 21% from a year earlier.
• Equity underwriting fees rose 6% to $542 million.
• Fix income markets revenue dropped only 4% driven largely by net markdowns of $696 million on leveraged lending funded and unfunded commitments, as well as mortgage-related net markdowns of $405 million.
  

The straight-talking Dimon did not mince words about the challenges that lie ahead for JPMorgan, saying in the release, "Our expectation is for the economic environment to continue to be weak – and to likely get weaker – and for the capital markets to remain under stress.... In spite of the environment, we are confident that we are building an increasingly strong and profitable company."

But unlike many on Wall Street, Dimon can walk the walk and talk the talk.

A number of corporations bought auction rate securities with their excess cash. They believed that since the instruments offered better yield than many market funds, they would be good for balance sheet management. They also thought that since auction-rate paper had been liquid and widely traded since 1985 that moving in and out of the market would be easy.

It was easy until it wasn't.

The investment banks and money center banks which made the market in these instruments pulled out at the beginning of the credit crisis. They did not want to keep risking their own capital to buy the paper and hold it to keep the market trading. Traditionally what was not bought at one auction was picked up by banks and held until the next round of trading. In essence, large financial firms kept the market trading by underwriting the system in exchange for large commissions.

MAJOR PAPERS:

• The Wall Street Journal's "The Game" column speculates that one of the results of the Bear Stearns crash could be the push of investment banks and commercial ones closer together, which could result in better handling of volatility with more stability. Some observers think Merrill Lynch & Co (NYSE: MER), Morgan Stanley (NYSE: MS) or The Goldman Sachs Group Inc (NYSE: GS) could go that route by buying a commercial bank. Any move would force them to adhere to better reserve ratios, affect short term bank funding, and shrink balance sheets.
• The Wall Street Journal reported that Google Inc (NASDAQ: GOOG) will soon make available a new service that measure hits on the Internet with the intent of helping advertisers decide where to buy ads online and would directly compete with comScore Inc (NASDAQ: SCOR) and Nielsen Online. Ad executives said Google's method could make targeting markets more efficient.
• A Manhattan judge dismissed four claims made by American International Group Inc (NYSE: AIG) in its fight to regain control of a block of its shares held by Starr International, a company that once founded a lucrative compensation plan for AIG executives. AIG believes the shares held by Starr should continue to be used to fund employee compensation, the Financial Times reported.

WEB SITES:

• According to Scorpio Partnership, Bloomberg reported that UBS AG (NYSE: UBS) and Merrill Lynch had slower growth in assets under management last year due to losses connected to the U.S. subprime crisis.

Two separate pieces of news hit the market. They did not appear to be directly related, but they do say that employment on Wall Street could drop much further this year.

According to The Wall Street Journal, Citigroup's (NYSE: C) "will dismiss thousands of investment-banking employees world-wide as part of a plan to cut the roughly 65,000-employee group by 10%." The FT reports, Goldman Sachs (NYSE: GS) "is now expected to cut up to 10 per cent of staff in the division that handles mergers and acquisition advice and corporate fundraisings."

Because Goldman is perceived as doing relative well in a tough financial environment, the news is particularly bad.

The information is another sign that the world of Wall Street is not turning around. If these companies saw a second half recovery, they might be less likely to cut so deeply.

But, it is part of a trend. After bottoming in March, U.S. financial stocks started to move back up at the end of Spring. There was talk that the credit crisis had seen its peak.

With new write-offs and thousand of people in the industry about to be out of work, it looks like the April rally was for suckers.

Douglas A. McIntyre is an editor at 247wallst.com.