Wednesday morning, banking giant Wells Fargo (WFC) announced that its fourth-quarter profit increased sharply thanks to improving customer payment habits and lower reserves to cover "souring loans."

During the quarter, Wells Fargo reported net income of 61 cents per share ($3.2 billion), matching the consensus estimate. A year earlier, the company earned 8 cents per share ($394 million) thanks to a large preferred dividend paid to the government (this payment was not necessary this year). The bank's CEO John Stumpf stated that the bank's business segments "contributed to earnings as the economy started to gain strength."

So now, when you thought that Goldman Sachs Group Inc. (GS) was king of the hill, think twice. JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) both racked up perfect trading quarters, according to the Wall Street Journal.

JPMorgan had 12 days where it made more than $200 million each day. Bank of America had at least 25 days where it made more the $100 million from trading in the third quarter.

The financial crisis, employment market and social media explosion have converged, providing a new level of clarity into what is happening in the world around us. Where was ground zero for this financial catastrophe? Well, according to the LinkedIn blog, five companies have shown the most action: Barclays (BCS), Credit Suisse (CS), Citigroup (C), Bank of America (BAC) and JPMorgan Chase (JPM). Interestingly, Goldman Sachs (GS), among the biggest winners now that we're pulling out from the recession, didn't see as much play.

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.

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.

• 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.