Some analysts think that the worst of the write-downs in the financial sector are over. But a run of good earnings from banks and looser accounting rules doesnt signal an all clear -- commercial real estate paper and high yield debt losses still loom and investors have to wonder if banks reporting strong profits are doing so at the expense of reserves against these losses.  Surprisingly profitable quarters from Goldman Sachs ( GS - news - people ) and Wells Fargo ( WFC - news - people ) and looser accounting rules have invigorated watchers of financial stocks. In a recent note, David Kelly, chief market strategist for JPMorgan, wrote that there are signs the write-down wave that crushed bank and brokerage earnings last year may be coming to an end.  The string of strong earnings could be a result of banks running out of assets to write down or the loosening of mark-to-market accounting rules by the Financial Accounting Standards Board and they haven't even had to sell into the Treasury's Public Private Partnership program yet.  Still write-downs will likely continue, just not on the scale of last year. Goldman, for instance, took an $800 million hit to earnings from commercial mortgage loans, private equity investments and corporate debt in the first quarter. Most of these have been marked down to 50 cents on the dollar and could drop further. Loans and high yield bonds will likely drop as the default rates climbs. Commercial mortgage backed securities would fall along with the commercial real estate market.  In a speech last month, Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising vacancy rates, excess supply in hotels and retail space pose a threat to banks holding $2.5 in commercial property loans on their balance sheets.
Don't be fooled by strong earnings from Wells Fargo and Goldman Sachs. Banks will still take balance sheet losses.