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Is Wall Street biting back?
Goldman and the gang are reporting bumper profits, but their woes may not be behind them.
The wolves of Wall Street have spent much of the last few years licking their paws. Banks have been kicked from two sides ever since the collapse of Lehman Brothers in 2008 – both the global recession itself and irate governments with a penchant for nine-figure fines have bitten into profits.
As the sector is truly global, still-suffering banks may well be cheered by news from their American cousins this week that profits are on the rise again. Goldman Sachs is leading the pack, naturally. Profits were up 40% in the three months to March 31 to R33.6-billion, its highest quarterly result in four years.
You know things are going well when bonuses start booming. Goldman’s 34 000-odd employees divvied up R54.1-billion between them last quarter in total compensation, 11% more than last year. That’s around R1.5-million each, for three months’ work.
Goldman Sachs wouldn’t want to be accused of returning the heady days before the recession. Compensation as percentage of revenues fell 1% to 42%. On the other hand, revenues were up 14% to R127.4-billion on the back of better equity trading and an M&A boom, which netted the firm a whopping R11-billion in advisory fees. Everybody wins, eh?
Citigroup and JP Morgan Chase also revealed big quarterly profits this week, up 16% to R55.7-billion and 12% to R30.6-billion respectively (the latter in its corporate and investment divisions only). It might not quite be time to order in the champers just yet, however.
Citigroup’s revenues actually fell slightly. The bank only reported a profit increase because its costs fell 10%. Essentially it’s paying its employees less, and no longer has to fork out quite so much on the restructuring designed to make it more resilient. That, of course, is a good thing for the economy at large and is indicative of the wider, government-prompted sweep in banking to cut risk exposure.
Governments are still prompting too. America’s banks may have passed the US stress tests earlier this year, but there are still facing investigations into forex-rigging that could result in further hefty pay-outs. JP Morgan put aside nearly a billion dollars over the last three months to cover such potential hits.
There are still pitfalls along the way, but the trend is up for Wall Street. Given the new emphasis on resilience, that’s probably good news for the global economy, but don’t expect the banker-bashing to abate any time soon.