By Peter Rudegeair, Orla McCaffrey and Ben Eisen
A stock-market boom fueled by Reddit-reading individual
investors and a burst of companies entering the public markets
produced record quarterly profits at Wall Street's biggest
banks.
Goldman Sachs Group Inc. posted records in quarterly revenue and
profit. JPMorgan Chase & Co. notched its highest quarterly
profit on record, driven by record revenue from trading stocks.
Even Wells Fargo & Co., a minnow on Wall Street, enjoyed its
best-ever quarterly profit in corporate and investment banking.
The party showed no signs of ending soon. Even after reporting a
73% increase in investment-banking fees, Goldman said the volume of
coming transactions in that business at the end of the first
quarter stood at a record level.
"Activity levels continue to be elevated from what I would say
was a pre-Covid activity level by a meaningful amount," David
Solomon, Goldman's chief executive, said on a conference call with
analysts. "The environment, the monetary fiscal stimulus, and in
addition the economic recovery, continues to paint a relatively
constructive background."
The blockbuster results were the latest proof that in both good
times and bad, Wall Street can thrive. When markets are chaotic,
traders can still turn big profits. When the economy is flailing,
bankers can help nervous companies raise cash or sell
themselves.
Now, the U.S. economy appears to be poised for an upswing.
Worries about what could undo both the economy and record stock
markets -- inflation, hiccups in the rollout of coronavirus
vaccines, concern that the tech companies that have powered markets
higher are reaching their limits -- haven't stopped investment
bankers and traders from making hay.
The quarter also continued the divergence between Wall Street
and Main Street. Consumer-banking revenue was down 6% at JPMorgan
and flat at Wells Fargo. Loan demand from consumers and businesses
has been tepid. JPMorgan's outstanding loans shrank 4% from a year
ago and Wells Fargo's fell 15%. Americans' finances still could
deteriorate when government relief programs on mortgages and
student loans run out.
Still, JPMorgan and Wells Fargo both released billions of
dollars they set aside last year for potentially bad loans. The
industry rushed to stock up on reserves when the coronavirus
pandemic took hold in the U.S. But big losses so far haven't
materialized, and bank executives are concluding that they had more
set aside in rainy-day funds than they needed.
JPMorgan released $5.2 billion, compared with $2.9 billion in
the fourth quarter of 2020.
"We expect the recovery to be robust in the second half of the
year," JPMorgan Chief Financial Officer Jennifer Piepszak said on a
call with analysts Wednesday morning. "And so if we continue to see
that, if we continue to see labor markets recover, if we continue
to see the vaccine rollout be successful, we would have future
releases from here."
The first quarter of 2021 was a crazy one on Wall Street.
Individual investors piled into seemingly random stocks including
GameStop Corp. Armies of individual investors banded together in
Reddit forums, driving up prices on a few companies and forcing
hedge funds to take painful losses. Late in the quarter, Archegos
Capital Management rattled the stock market when it and its banks
began liquidating sizable positions in blue-chip stocks.
All the while, the blank-check boom that carried Wall Street in
the fourth quarter continued to pick up speed. In the first three
months of the year, more special-purpose acquisition companies went
public than in all of 2020. SPACs put a reverse spin on the
conventional model for public offerings because they raise money
before developing a business. They use the funds to make an
acquisition that turns the target into a public company.
Banks earn money on both sides of the SPAC equation --
underwriting the IPOs and advising on the mergers.
At Goldman, stock-underwriting revenue more than quadrupled to
$1.6 billion, though Mr. Solomon said SPACs were responsible for
less than 15% of that. At JPMorgan, equity underwriting more than
tripled to $1.1 billion.
Goldman's investment bankers brought in a record $3.8 billion in
fees arranging mergers and securities offerings. JPMorgan's
investment bankers brought in $3 billion, up 57% and also a
record.
Revenue from advising companies on mergers and acquisitions rose
43% at Goldman and 35% at JPMorgan.
Trading revenue jumped, particularly in stocks, where markets
have hit highs. Goldman trading revenue rose 47% from a year
earlier to $7.6 billion, thanks to a 68% increase in stock-trading
revenue and a 31% jump in fixed-income-, currency- and
commodity-trading revenue. At JPMorgan, trading revenue rose 25%,
powered by record stock trading.
Archegos inflicted banks including Credit Suisse Group AG with
big losses, but U.S. banks were mostly unscathed. Goldman was a
large lender to the fund but was among the first to unload its
assets when Archegos couldn't meet margin calls.
Wells Fargo's corporate and investment bank posted a 7% gain in
revenue. Adjusted trading revenue jumped 19%. The division had a
profit of $1.57 billion, its biggest since at least the beginning
of 2019, when it first broke out results.
"We want to continue to build out the corporate investment bank
as we've been doing in a very linear way," said Charles Scharf,
Wells Fargo chief executive. The move would further diversify the
bank, which has long been focused on consumers.
Goldman shares rose 2.3% and Wells Fargo shares climbed 5.5%.
JPMorgan shares fell 1.9%.
Write to Peter Rudegeair at Peter.Rudegeair@wsj.com, Orla
McCaffrey at orla.mccaffrey@wsj.com and Ben Eisen at
ben.eisen@wsj.com
(END) Dow Jones Newswires
April 14, 2021 16:43 ET (20:43 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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