The
country’s six largest banks—JPMorgan, Morgan Stanley, Citigroup, Wells
Fargo, Bank of America, and Goldman Sachs—all reported their earnings
for the summer quarter this week. As Larry David would say, the results
were prettay, prettay good.
Just three quarters through 2021, Goldman Sachs has already notched its best year ever in terms of revenue. The hero last quarter was its investment banking unit, which rode a dealmaking spree to an 88% sales bump.
What else did we learn from banks?
Covid didn’t wreck the economy as feared. In
those unprecedented days last spring, banks stashed away money in a
rainy day fund to prepare for a wave of loan defaults—but those never
came. JPMorgan said this week it was releasing $2.1 billion from the cash pile under its mattress.
Spending is up. Wells Fargo said that debit card spending was higher every single week last quarter when compared to 2019. And at Citi, credit card spending is “well above 2019 levels.”
The trading boom is mostly going strong. Concerts
and socializing are back, but many people are still trading stocks as
if we were in lockdown: Bank of America, Morgan Stanley, and Goldman all
reported higher sales from trading last quarter. In all, five US banks
made an additional $51 billion in trading revenue over the last seven quarters compared to the same period pre-Covid.
CEOs see inflation sticking around: Most
bank executives agreed that inflation wasn’t as transitory as once
predicted, and Morgan Stanley CEO James Gorman went so far as to urge the Fed
to hike rates by Q1 of next year, months before the Fed has planned on
it. “You’ve got to prick this bubble a little bit,” Gorman said.
But the best times could be ahead
As the Fed
prepares to wind down the stimulus measures that supported markets,
investors will need to reshuffle their portfolios to adapt—potentially
leading to even more $$$ for banks. And their skyrocketing share prices
reflect that optimism: The KBW Bank index has doubled the S&P 500
this year, and Goldman is the Dow’s top stock, up 51% since Jan. 1.—NF
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