Big banks show up the Reddit crowd

GOLDMAN, JPMORGAN

A quarter that began with retail investors declaring the end of the status quo on Wall Street just ended with big banks tallying surprisingly massive hauls.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. — two of the most gilded names in finance — kicked off bank earnings season with revenue windfalls from trading and deal-making, defying warnings from within the industry that good times couldn't last. The boon was thanks in part to the optimism of small investors who tried to stage a trading revolution in January.

Goldman Sachs earned more from trading in the first three months of the year than it had in any quarter in the past decade, while JPMorgan saw such revenue climb 25 per cent. Stock underwriters at both firms posted the most revenue ever after helping a flood of blankcheque companies — known by their acronym SPAC — tap investors to build war chests for future takeovers.

“Wow,” Susan Roth Katzke, an analyst at Credit Suisse Group AG, said in a note to clients about earnings at Goldman Sachs, which leans more heavily on Wall Street operations than rivals. “Impressive all around.”

Goldman Sachs's stock closed Wednesday up 2.35 per cent. JPMorgan's slipped 2.85 per cent, undermined by concern over weak demand for loans.

For months, executives and analysts have been cautioning that last year's pandemic-fuelled market turmoil and demand for cash that propelled trading and deal-making were easing, and that earnings in 2021 would be characterized by tough comparisons to those year-earlier periods.

Instead, traders seem to have had a Goldilocks moment as the year began.

In January, retail investors organized on forums such as Reddit drove up GameStop Corp. and other so-called meme stocks that had been beaten down by mainstream finance, making day trading an international sport. Volumes stayed elevated even as volatility began receding by the end of the quarter, according to Goldman's earnings presentation.

In all, Goldman's traders boosted revenue 47 per cent to US$7.58 billion — more than US$2-billion higher than what analysts had projected. Goldman's deal-makers were busy too, more than doubling investment-banking fees, excluding corporate lending.

At JPMorgan, stock-trading revenue jumped 47 per cent to US$3.29 billion, topping even the highest analyst estimate gathered by Bloomberg. Investment-banking fees soared 57 per cent to US$2.99 billion.

Still, JPMorgan and Goldman's results might not translate to jubilee across Wall Street. Both firms warned that they saw lower revenues from their businesses of trading currencies — an area where Citigroup Inc. dominates.