The world’s largest banks entered the Covid-19 crisis in good shape and are emerging with surplus wealth. Wall Street entities made huge profits operating in turbulent markets and are ending 2020 flooded with capital. Your mission for 2021 is to find an acceptable way to spend it.
Earnings from trading of the benches are so large that they are practically visible from space. America’s five largest firms – JP Morgan, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America – made $ 84 billion of revenue in the markets combined in the first three quarters. Let’s say that’s 112 billion for the full year: it’s 35 billion more than its 10-year average, driven by Covid-19 dislocations, central bank support for financial markets, and a presidential election. from biting your nails. They also earned an extra 7,000 million with the placement of issues of stocks and bonds.
Then there is the effect of the defaults hurricane that never happened. Megalenders JP Morgan, Citi, Wells Fargo and BofA have set aside $ 52 billion so far this year to cover future credit losses. At JP Morgan, the increase in provisions has been a colossal 15,000 million. However, CEO Jamie Dimon says bad debt levels appear “great,” especially since government stimulus has kept borrowers afloat. Much of what has been tucked under the rug should appear in 2021.
Finally, there is the strengthening of bank balance sheets. The six largest financial institutions on Wall Street have $ 128 billion more capital than they officially need, according to their third-quarter reports, thanks to the Federal Reserve’s demand that share buybacks stop.
Citi’s new boss, Jane Fraser, will inherit a capital surplus equivalent to more than a fifth of her bank’s market capitalization. And savers have flocked to large entities. The top 25 took twice as many deposits this year as all the other 5,000 in the country combined.
What to do with all that loot? The traders, executives and shareholders will want a share. Low interest rates pose many long-term challenges. Yet it is the government, and the taxpayer, who Wall Street must thank. Their gratitude so far falls short: In America’s Needs Year, the Big Four lenders cut their combined loans by 3%.
The banks’ task in 2021 is to find creative ways to help the real economy, and return profits that were never really theirs to begin with.
The authors are columnists for Reuters Breakingviews. Opinions are yours. The translation, of Carlos Gomez Down, it is the responsibility of Five days
– .
