Banks booked some gains on formerly “toxic” assets in the third quarter as values improved, but uncertainties about underlying assets remain.

Citigroup and JPMorgan Chase realized billions of dollars in gains from distressed assets, the Financial Times reported. After banks suffered more than $1 trillion in writedowns globally on troubled assets such as mortgage-backed securities during the crisis, the latest results bode well for the industry, the newspaper said.

Some of the risky assets have found buyers, though they remain hard to value, the FT said. Information is scarce about the likely performance of some mortgages, making predictions of cash flows and values difficult.

“There were some assets that had lost too much value six months ago and investors are recognizing that,” Robert Smith, CEO of structured products specialist Rangemark, told the FT.

But Smith went on to caution that in spite of the rally, much of the collateral is “broken” and banks and investors are still holding a lot of securities that may not have been sufficiently marked down. “Valuation methods are still oversimplified, which means risks may not be properly assessed,” he said.

Government programs to support the value of toxic assets – such as the Public-Private Investment Program (PPIP) and the Term Asset-Backed Securities Loan Facility (TALF) – have fueled the rally, the FT said.

Citigroup booked a gain of $2 billion on its portfolio of collateralized debt obligations (CDOs) backed by subprime mortgages, one of the securities worst hit. Citi valued its CDOs at about 38 cents on the dollar, an improvement over the levels of previous quarters, the FT reported, and sold some of its toxic assets during the quarter.

JPMorgan, which had lower losses than Citi, reported a $400 million gain, mostly on the loans it had made to private equity groups to fund leveraged buyouts.