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With Donald Trump moving into the White House on Monday, companies across the US are assessing what the new administration means for them. For tech companies, it seems to mean a lot of grovelling. For Wall Street, it means soaking up a lot of additional profit.
The fourth-quarter performance of big banks that reported on Wednesday set the tone. JPMorgan’s earnings increased 54 per cent year on year, no mean feat for the country’s largest lender. Goldman Sachs’ leapt 71 per cent, while Citigroup, whose boss Jane Fraser is wrestling with a bumpy turnaround, swung from the red to a $2.6bn profit. Economic conditions seem benign — though it would be a brave bank boss who said otherwise so close to the arrival of the new commander-in-chief.
It’s hard to find a part of their business not experiencing a pre-emptive Trump bump. Interest income remains historically high because the gap between the short-term rates at which banks borrow and the longer-term rates at which they lend has widened. Roughly speaking, that telegraphs falling rates today and rising inflation in future. Depositors — for reasons the banks can’t quite explain — seem prepared to accept much less in interest than they would get in a truly competitive world. JPMorgan expects the current year will bring it $94bn of net interest income, where analysts polled by LSEG had expected $91bn.
Volatility is the real gift. Trump will bring lots of it, and that will bolster securities trading results. These are already defying gravity. Before Covid-19, the biggest five banks would make about $80bn in a good year. Despite a couple of years of executives warning of “normalisation” ahead, that amount has actually risen to a record $116bn. That assumes that yet-to-report Morgan Stanley and Bank of America meet analysts’ estimates.
For bosses such as JPMorgan’s Jamie Dimon and Goldman Sachs’ David Solomon, the expectation now is for less regulation and more dealmaking. Of course, the banks see less red tape as their just deserts. JPMorgan finance chief Jeremy Barnum said the bank was looking forward to less “reflexively anti-bank” rulemaking.
Monday should therefore be a good day for Wall Street. And while tech bosses including Apple’s Tim Cook and OpenAI’s Sam Altman are giving money to Trump’s inauguration campaign — an unsubtle gesture even if it proves effective — the banks can buy friends in a different way: by paying cash back to their shareholders.
Large, listed lenders have $159bn of capital in excess of the minimum regulators demand, Morgan Stanley analysts calculated last week. JPMorgan alone, based on Wednesday’s numbers, has roughly $50bn it could dole out in buybacks and dividends. That’s a more transparent way to win the favour of people who matter.
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