Wall Street on pace for $100B trading year

Working from home hasn’t slowed downWall Street’s trading desks.

The five biggest U.S. investment banks are on pace for their first $100 billion year for trading revenue inmore than a decade. In just three quarters, they’ve already generated almost $84 billion, more than any full year since 2010.

Sell-side traders rode a wave of activity as markets plunged at the start of pandemic-spurred lockdowns before embarking on dramatic rebounds. Trading gains since the start of the pandemic have helped offset weakness in consumer businesses at the nation’s biggest banks, where loanloss provisions piled up in the first half of the year.

Capital markets units have “really been the bright spot as far as revenues have gone since the pandemic started,” Jeff Harte, a bank analyst at Piper Sandler, said in a Bloomberg Television interview. “It’s been pretty good earnings, at least from the big banks.”

JPMorgan Chase & Co., GoldmanSachs Group Inc. andMorgan Stanley all saw trading revenue surge more than 20 percent for a third straight quarter. The totals weren’t as staggering as the second quarter, which was a record for modern Wall Street’s trading and dealmaking units, but they helped lift Goldman to record pershare earnings and Morgan Stanley to its second-highest profit ever.

The windfall for investment banks as the broader economy suffers has raised questions about the Federal Reserve’s policy response and lenders’ role in a recovery. It also raises challenges for how the firms handle paying the traders who’ve brought in the haul. But the gains have ultimately kept profit relatively stable and helped banks avoid the existential questions they faced in the last crisis.

While the firms’ collective profit rebounded almost back to prepandemic levels, investors aren’t treating the biggest banks like they’re out of the woods.

Five of the six banks surpassed analysts’ per-share earnings estimates, but only two saw their stocks climb after reporting.

That continues a yearlong trend where financial firms have been largely leftoutof themarket recovery. Shares of the four largest lenders are all down more than 27 percent this year, even as the broader

S&P 500 has surpassed previous highs. The only sector banks are outperforming is energy.

Some of the largest banks are using 2020 to further their expansion plans.

JPMorgan’s CFO Jennifer Piepszak said the bank got approval to enter 10 additional states, which would bring the bank’s branch presence to 48 states. The bank has almost 120 branches in its expansion markets and will open more than another 150, Piepszak said. Bank of America has also been pushing to grow market share, opening 13 branches in new markets during the quarter.