3 min read
Good news, everyone: the big banks are absolutely coining it. Bad news, everyone: the reasons they are coining it are a rocket-company IPO and a war, and the last time Wall Street was this pleased with itself while the rest of the economy quietly groaned, things worked out just tremendously for all involved. But let us not get ahead of ourselves. First, the numbers, because they are genuinely something.
The scoreboard
Start with Goldman Sachs, which did not so much beat expectations as vaporise them. Per CNBC, Goldman posted earnings of $20.98 per share against the $14.48 analysts expected, on revenue of $20.34 billion versus a $16.13 billion consensus. That is not a beat, that is a mugging. The shares jumped more than 3% before the market even opened.
Bank of America came in at $1.21 per share against $1.13 expected, on $31.7 billion of revenue versus $30.72 billion penciled in. Wells Fargo managed $2.00 per share on $22.62 billion, comfortably ahead of the $1.72 and $21.84 billion analysts wanted, and got a 1% share-price dip for its trouble, because the market is a fickle beast that occasionally punishes you for merely doing brilliantly rather than miraculously.
Where the money actually came from
Here is the part that is either exhilarating or faintly grim, depending on your temperament. Investment-banking revenue was on course to jump roughly 26% year on year and trading revenue about 14%, and a huge slug of that windfall came from two sources: the hundreds of millions of dollars in fees SpaceX paid the banks to shepherd its blockbuster IPO, and the market volatility churned up by the war involving Iran. In other words, the banks got rich helping the world’s richest man go public and got richer again on the trading chaos of a geopolitical crisis. Nice work if you can get it.
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The bit history keeps trying to remind us about
“The banks are doing great, so everything must be fine” is one of those sentences that sounds reassuring right up until you remember when people last said it with a straight face. Bank profitability is a wonderful thing for bank shareholders and a genuinely useless barometer of whether the actual economy, the one where people buy groceries and pay rent, is holding together. In 2006 and early 2007 the banks were also having a spectacular time, right before they weren’t, and right before the rest of us spent the better part of a decade paying for the party. This is not a prediction that the sky is falling. It is a reminder that “Wall Street is thriving” and “everything is fine” are two entirely different claims, and only one of them is currently supported by the evidence.
For now, enjoy the spectacle. A rocket IPO and a war walked into a bank, and the bank walked out with the best quarter it has had in years. Whether that is a sign of strength or a sign of exactly how detached asset prices have drifted from the ground is a question for another, probably less pleasant, day.
Not investment advice, just a market watcher’s notes.