Traders at Wall Street’s biggest banks kept their blockbuster winning streak alive in the third-quarter as they made hay on volatility triggered by the war in Iran and swinging AI stocks.
Equity trading divisions at the big six US banks – JP Morgan, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and Wells Fargo – pocketed a combined $22bn in revenue in the last three months.
Goldman led the pack with 72 per cent annual growth to $6.4bn, while Morgan Stanley secured the second place spot with $5.8bn after a 41 per cent jump.
Trading desks benefited from a surge in prime brokerage and portfolio refinancing, as hedge funds borrowed more cash to make bigger bets across different sectors and stock markets.
Goldman and Bank of America reported double-digit growth in prime balances – the money and assets banks hold for hedge funds – while Citi recorded more than a 40 per cent increase.
“I know everybody wants to call the peak. It’s hard to call the peak,” Goldman boss David Solomon told investors following the bank’s earnings report.
“I still think for capital markets activity, it’s a top quartile environment”.
Total revenue for the cohort came in at $165.6bn, a fall of 6.7 per cent from the previous quarter’s haul.
Bank of America delivered just shy of $30bn, though its update was clouded by a mammoth $1.2bn fine from the US Treasury Department. The fine – the third-largest the department has handed out in its history – was due to the bank’s failure to report more than $5bn in suspicious activity to the government.
The bank’s net income dropped 17 per cent to $6.9bn after it registering the charge.
Higher rates deliver ‘shared positive’
Investment banking activity began to moderate following a slowdown in dealmaking momentum. Goldman’s investment bank fees slipped five per cent to $3.2bn, compared with the previous quarter.
JP Morgan posted a nine per cent drop-off to $22.7bn. The bank’s chief Jamie Dimon said “activity did moderate somewhat in the quarter”.
Net interest income grew across the board, except for a two per cent dip at Goldman Sachs. It follows the Federal Reserve hiking interest rates last month to 3.75 per to four per cent after inflationary pressures ramped up due to the US-Iran war.
Chris Beauchamp, chief market analyst at IG, told City AM the “shared positive” across US bank earnings was that “higher rates keep powering lending income”.
The Bank of England has left rates unchanged so far for the year, leading to UK lenders upgrading their income targets for the year after previously pencilling in cuts to the base rate. Beauchamp said the boost to lending income in the US signalled good news for Lloyds and Natwest when UK banks deliver third-quarter updates at the end of the month.
He added Goldman’s dealmaking beat offers “some comfort” for Barclays’ investment bank, which has remained a key engine of the group’s balance sheet.
Barclays will kick off the UK banks reporting season on 22 October followed by Natwest, Lloyds, Santander and HSBC the next week.
But the period is set to be overshadowed by political storm clouds with Chancellor John Healey delivering his first Budget on 28 October.
Banks are in the firing line for a major tax raid as Healey looks to balance the books. At a gathering last week with industry bosses, Healey stayed tight-lipped on tax policy but warned the sector chiefs the UK was facing a “challenging” fiscal picture.
Wall Street bosses have fired warning shots to the UK government over any potential tax changes. Dimon cautioned of “adverse consequences” if taxes are raised on the sector. Citi chief Jane Fraser told reporters in August that “money votes with its feet” when questioned what the response may be to any tax policy changes in the UK.