It's Nice To Be Rich: Wall Street Is Raking In Profits In The Stock Market

Jul 15, 2020
Originally published on July 15, 2020 12:05 pm

The economy is tanking across the country, with layoffs and bankruptcies as far as the eye can see. But the richest sliver of the country continues to do quite well, thank you.

The latest evidence came Wednesday morning as Goldman Sachs, the bluest of blue-chip banks, said it's raking in money on Wall Street.

While other banks are warning about rising loan losses during the recession, Goldman, which tends to serve a higher-end clientele, is sounding a pretty optimistic note.

In fact, Goldman said it did better than expected, bringing in revenue of $13.3 billion, up 41% from a year ago — and its second-highest quarterly revenues ever.

It benefited from a record surge in trading of stocks and bonds as well as profits from investment banking fees.

"While the economic outlook remains uncertain, I am confident that we will continue to be the firm of choice for clients around the world who are looking to reshape their businesses and rebuild a more resilient economy," CEO David Solomon said in a release.

Goldman's profit surge underscores a central fact about the bifurcated U.S. economy right now: While much of the economy faces an uncertain future, Wall Street is enjoying a historic revival as the Federal Reserve and other central banks flooded the global economy with money.

"The Fed has been able to engineer a huge bounce back in the markets by injecting trillions of dollars, benefiting investment banks primarily," Octavio Marenzi, CEO of capital markets consultancy Opimas, told CNBC.

JPMorgan Chase and Citigroup have also benefited from higher trading profits, though not as much: Both said Monday they would set aside billions of dollars because they expect more consumers and businesses to have trouble paying off their loans.

Goldman, which gets more of its revenue from Wall Street than any of the six major banks, was able to profit nicely from the rebound: It brought in $2.94 billion from stock trading during the second quarter of 2020, its best performance in more than a decade.

It also made a record $2.66 billion in investment banking fees, helping companies raise money during the pandemic.

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It's a paradox. Big Wall Street investment banks are going gangbusters, enjoying strong profits even as the greater economy is suffering through a deep recession. As NPR's Jim Zarroli reports, the reason has everything to do with the stock market.

JIM ZARROLI, BYLINE: This was one of the worst springs in recent memory for the American economy. So when Goldman Sachs reported its second-best quarter ever today, a lot of people were surprised. Amanda Fischer is policy director at the Washington Center for Equitable Growth.

AMANDA FISCHER: So it's really been kind of a boom quarter for the big investment banks.

ZARROLI: Goldman is the bluest of blue-chip investment banks. Its clients are among the richest in the world. Big banks like Goldman make a lot of their money arranging deals for their clients and trading stocks, stocks they either own themselves or trade on their clients' behalf. And stocks have staged a dramatic rebound recently, especially big technology shares like Amazon and Facebook. Karen Shaw Petrou is managing partner of Federal Financial Analytics.

KAREN SHAW PETROU: Anybody with money in the markets has done very, very well. Anyone running a small business or having a job, particularly a lower-income job, has struggled.

ZARROLI: Some big banks like JPMorgan Chase and Citigroup are struggling with a surge of bad loans. But those losses are being offset by money they're making on their trading desks. One big reason the markets have done so well is the Federal Reserve. It's unleashed a stunning array of lending programs. It's buying up corporate and municipal bonds. It's flooding the economy with money. This has had an impact on investors, says Amanda Fischer.

FISCHER: It just instills confidence among investors in the equity markets that the value of their investments will not go down no matter how hard-hit the companies are by the pandemic.

ZARROLI: The Fed's promises have had their desired effects. Investors are pouring money into stocks. But the benefits have been pretty uneven. The Fed has also created lending facilities for small businesses. But Karen Petrou says they haven't worked so well. For now, the economy remains bifurcated, with a sliver of wealthy investors doing much better than anyone else. Petrou says if the economy remains weak in the long run and huge numbers of people are unemployed, then banks will eventually suffer, too.

SHAW PETROU: There's just no escaping that. But it's a very unequal situation right now because the Fed is supporting markets, and banks make money in the markets. That's just the way it is.

ZARROLI: And Petrou says there's another worry. The more the Fed props up stock and bond prices, the more investors come to depend on the Fed's largesse. And once the Fed stops its bailouts, the markets could quickly lose ground, and even the rich will be affected.

Jim Zarroli, NPR News, New York.

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