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The next wave of banks reported financials yesterday and the results might make you want to disregard WHO's warning against drinking during the coronavirus. As if you are listening to it anyway...
Goldman Sachs, Citigroup, and Bank of America all reported net profit decreases of 46%, 46%, and 45%, respectively, thanks to the impact from the current pandemic. If big banks aren’t safe, who is?
David Solomon must have made a deal with the devil (apparently the devil hands out private jets now too). Or maybe Goldman’s business model just isn’t as susceptible to a downturn. Despite earning just $3.11 per share compared to analyst estimates of $3.35 per share, Goldman’s stock price rose yesterday during market hours (though it did go red after hours).
It turns out that the bank’s trading division had its best quarter for equities and fixed income trading in five-years. Oh, volatility trades...it’s what fin bros dreams (and bonuses) are made of. Fixed income brought in $2.97B, while equities hauled in $2.19B. Firm-wide revenue came in at $8.74B, crushing the $7.92B estimates for Q1.
Turning to ash
The cards didn’t fall quite the same for Citigroup and Bank of America. Loan-loss reserves dragged down earnings as they put up $4.6B and $3.6B, respectively, for anticipated defaults. So the stimulus check won’t solve everyone’s problems... got it.
BOA’s quarterly revenue of $22.8B matched expectations, but its main bugaboo, along with the loan defaults, is lost interest income thanks to J-Poww and his buddies at the Fed bringing rates down so low.
Citi saw an increase in trading profits, as Goldman did, but it’s loan loss reserve was too much to overcome. The stock price dropped 5.6% yesterday and is down 46% since “the madness” started in March. Not the good kind of madness, but you knew that.
The bottom line...
It turns out not all banks are created equal. Who knew?
Those banks whose business models rely on loans to make money off of interest (JP Morgan) aren’t faring as well as those who make money through transactions, fees, and trading (Goldman).
In fact, Goldman’s loan-loss reserve was just $937M while JP Morgan’s was $8.3B. Being a bank that caters mostly to businesses seems to work out in the former’s favor given the current circumstances. How does that Marcus growth initiative look now, DJ D-Sol?
Goldman’s profit tumbles 46% [CNBC]
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