NEW YORK -- If the nation's major banks report big third-quarter profits, don't take the numbers at face value.

Although trading gains could drive strong earnings for banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc., mounting loan losses and the prospect of tougher capital requirements and higher deposit insurance fees are expected to eat into the banks' profits well into 2010 and beyond.

Moreover, after all the reports are in, investors might be seeing a fragmented earnings picture, with profits at large companies obscuring festering problems at banks of all sizes .

A year after the housing crisis prompted a massive government bank bailout, the industry still faces the same problem: growing losses on loans as consumers and businesses default on debt.

Nationwide, 98 banks have failed this year and 416 are deemed a problem. Analysts expect more closures among small and regional banks because of losses on commercial real estate loans.

Investors are focused on reports this week from heavy hitters including JPMorgan, Goldman Sachs, Citigroup Inc. and Bank of America Corp. Investors are looking to banks for signs that an economic recovery is under way.

Better-than-expected results from banks in the first half of the year stirred hopes that the economy is healing, and that optimism helped drive the stock market's seven-month rally. The benchmark Standard & Poor's 500 index is up 59.1 percent since hitting a 12-year low in early March. The KBW Bank Index, which tracks 24 of the largest U.S. banks, has risen a staggering 144.3 percent.

Despite that impressive performance, investors are still wary about the industry. Financial stocks mostly fell Tuesday after influential bank analyst Meredith Whitney downgraded Goldman Sachs' shares to "neutral" from "buy," saying investors should consider taking profits.

JPMorgan, which reports to day, is expected to post profits of 49 cents a share, up from 11 cents for the same quarter a year ago. Goldman is expected to report profits of $4.24 per share Thursday, up 57 percent.

But t he cost of loan losses and funding loan-loss reserves is expected to soar 90 percent over the previous year.