Banks look for new normal, find they don’t need it
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
By Jonathan Guilford and Liam Proud
NEW YORK, Oct 15 (Reuters Breakingviews) -The last few years have been kind to big U.S. banks. Markets fueled by pandemic-induced government spending and low interest rates created a deal frenzy; volatility helped trading; and the success was followed by a rate-hike that created a lending windfall. One question for CEOs like Goldman Sachs’ GS.N David Solomon and Bank of America’s BAC.N Brian Moynihan is whether there’s a scarier “new normal” around the corner. Third-quarter results suggests, whether it’s a traditional bank or one that focuses more on dealmaking, they’ve found a way to make boom times last.
At the most basic level, high rates are good for banks, which take in people’s cash in the form of deposits and then lend it out for a fee. Net interest income, or revenue from loans and bonds minus the cost of liabilities, was on average 3% higher at BofA, Citigroup C.N, and JPMorgan JPM.N than in the second quarter. That might not sound like a lot, but it’s hard to move the needle on this part of the business. The trajectory suggests that lending income is relatively resilient to recent Federal Reserve rate cuts.
The good times continue on the trading floor, too. Goldman’s equities division posted $2.2 billion of revenue in the three months to September, blasting past analysts’ estimates by 30%, based on Visible Alpha data. It’s part of a longer-term trend, where busier markets and heightened volatility have given market middlemen plenty to work with. Debt and equity traders at the big five U.S. banks on average generated over $25 billion of revenue per quarter between 2020 and mid-2024, according to Moody's Ratings analysts, compared to below $20 billion between 2014 and 2019.
Investment banking is patchier. Much of 2021’s deal boom has unwound. In that year’s third quarter, Goldman Sachs saw roughly $1.2 billion in equity underwriting revenue, triple what it was in the last three months. One hope is that falling rates will help dealmakers by spurring buyout barons and others to binge on transactions in 2025. That would add icing to the cake: already, earnings this quarter rose 45%, to nearly $3 billion, beating expectations.
The success has even taken the banks by surprise, and bosses are characteristically managing to low expectations, and perhaps being a little self-serving. Goldman’s Solomon just last month predicted that trading would drop off. It didn’t, but if that warning were to come true, there’s room for the Fed to cut rates. JPMorgan’s boss Jamie Dimon is gloomy about the economy, too. But the bank reckons rate cuts will only lead to a few quarters of shrinking net interest income, before the figure starts growing again in 2025’s second half.
The upshot, then, is that big banks could emerge from the most chaotic period in recent memory in a surprisingly solid state, ready for a merger and initial public offering frenzy when money becomes cheap once again. A much-feared new normal might never materialize. Banks may find that they don’t need it.
Follow @JMAGuilford on X
CONTEXT NEWS
Goldman Sachs said on Oct. 15 that it had generated $8.40 in diluted earnings per common share in the third quarter of 2024, or 18% above analyst estimates, according to Visible Alpha data.
Revenue of $12.7 billion beat average analyst forecasts by 7%, while income from equity trading came in nearly 30% ahead of consensus.
Trading in fixed income, currency and commodities transactions was the one business line in markets to come in below expectations, falling 24% from the prior year. Investment banking fees of nearly $1.9 billion, meanwhile, beat estimates by 10%, and are up from results in the same quarter for the prior two years.
Bank of America and Citigroup’s net interest income, excluding the trading businesses, was higher than in the second quarter. That metric, which includes income from loans and securities minus the cost of liabilities like deposits, has been shrinking slightly in recent quarters.
Post-pandemic revenue surges at big U.S. banks https://reut.rs/3zQtOKC
Editing by Lauren Silva Laughlin and Pranav Kiran
免责声明: XM Group仅提供在线交易平台的执行服务和访问权限，并允许个人查看和/或使用网站或网站所提供的内容，但无意进行任何更改或扩展，也不会更改或扩展其服务和访问权限。所有访问和使用权限，将受下列条款与条例约束：(i) 条款与条例；(ii) 风险提示；以及(iii) 完整免责声明。请注意，网站所提供的所有讯息，仅限一般资讯用途。此外，XM所有在线交易平台的内容并不构成，也不能被用于任何未经授权的金融市场交易邀约和/或邀请。金融市场交易对于您的投资资本含有重大风险。
所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。
本网站上由XM和第三方供应商所提供的所有内容，包括意见、新闻、研究、分析、价格、其他资讯和第三方网站链接，皆保持不变，并作为一般市场评论所提供，而非投资性建议。所有在线交易平台所发布的资料，仅适用于教育/资讯类用途，不包含也不应被视为适用于金融、投资税或交易相关咨询和建议，或是交易价格纪录，或是任何金融商品或非应邀途径的金融相关优惠的交易邀约或邀请。请确保您已阅读并完全理解，XM非独立投资研究提示和风险提示相关资讯，更多详情请点击 这里。
