Wall Street banks see record rev­enue in re­cov­ery

The Pak Banker - - Company& -

NEW YORK: Wall Street's biggest banks, re­bound­ing af­ter a govern­ment bailout, are set to com­plete their best two years in in­vest­ment bank­ing and trad­ing, buoyed by 2010 re­sults likely to be the sec­ond-high­est ever.

The five largest U.S. firms by in­vest­ment-bank­ing and trad­ing rev­enue - Gold­man Sachs Group Inc., JPMor­gan Chase & Co., Bank of Amer­ica Corp., Cit­i­group Inc. and Mor­gan Stan­ley - will likely have a bet­ter fourth quar­ter than the pre­vi­ous two pe­ri­ods, driven by eq­uity un­der­writ­ing and higher vol­ume in stock and bond trad­ing, ac­cord­ing to data com­piled by Bloomberg. Even if this quar­ter only matches the third, the banks' rev­enue will top that of any year ex­cept 2009.

The surge has come af­ter the five banks took a com­bined $135 bil­lion from the Trea­sury Depart­ment's Trou­bled As­set Re­lief Pro­gram and bor­rowed bil­lions more from the Fed­eral Re­serve's emer­gency-lend­ing fa­cil­i­ties in late 2008 and early 2009 fol­low­ing the col­lapse of Lehman Bros. Hold­ings Inc. Since then, the firms have ben­e­fited from low in­ter­est rates and the Fed's pur­chases of fixed-in­come se­cu­ri­ties.

"This is a once-in-a-life­time op­por­tu­nity for most of these banks, and I think they've rec­og­nized it as that," said Charles Geisst, a fi­nance pro­fes­sor at Man­hat­tan Col­lege in Riverdale, N.Y., who has writ­ten about Wall Street's his­tory. "The prof­its they're mak­ing now will al­low them to re­plen­ish their cap­i­tal and take care of the other things they need to do." That may in­clude be­gin­ning to re­turn more of their prof­its to share­hold­ers. The Fed is­sued guide­lines last month on how it will de­cide whether large U.S. banks may in­crease div­i­dends and buy back shares.

New rules that will force banks to hold more cap­i­tal and move de­riv­a­tives trad­ing to clear­ing­houses may make it dif­fi­cult for the firms to con­tinue bounc­ing back from the worst fi­nan­cial cri­sis since the Great De­pres­sion. Rev­enue growth may also be threat­ened by nar­rower spreads than those that spurred fixed-in­come trad­ing over the last two years and less client trad­ing, an­a­lysts said. "The strength of 2010 was re­ally front-loaded," said Roger Free­man, a bank­ing an­a­lyst at Bar­clays Cap­i­tal in New York. "The best quar­ter of the year was by far the first quar­ter, which had some carry-over from the 2009 en­vi­ron­ment. The other quar­ters have ac­tu­ally high­lighted the chal­lenges in their world right now."

Those chal­lenges may lead banks to cut bonuses as they seek to re­duce costs and boost prof­itabil­ity amid lag­ging stock prices. -PB News

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