Investment banking: Flow leaders expect to protect their gains
Investment banking heads are confident that they can turn a government-sponsored trading boom into an enduring customer-based cash machine. Regulatory reform and renewed volatility threaten revenues, but the leaders think they have created a moat around their core earnings. Jon Macaskill reports.
Left to right: Gary Cohn, Goldman Sachs; Jerry del Missier, Barclays Capital; Paul Calello, Credit Suisse; Jes Staley, JPMorgan
THE MOOD AT the annual UBS financial services conference in the Waldorf Astoria hotel in New York in mid-May could easily have been gloomy. A hastily concocted financial services reform bill was moving to conclusion in Washington, complete with clauses that would strip high-margin operations from banks. Industry leader Goldman Sachs was still recovering from the shock of being accused by the SEC of fraud over former CDO sales practices. Other banks were being brought into investigations of credit instrument sales. Private-sector lawsuits against dealers were multiplying on the back of the regulatory probes, with some big clients considering legal action against their bankers. European sovereign debt woes threatened to crimp global demand as the euro slumped in value and credit spreads jumped.
But investment bank leaders pitching their individual institutions to the investors and analysts in attendance at the conference struggled to stifle an oddly triumphalist tone at the upturn in their fortunes, and the prospect of further good times to come.
Bankers like to back their public assertions with data points, even if the numbers have to be twisted to fit the thesis. There was no need to spin the first-quarter results racked up by the main dealers, however.
Bank of America, Citi, Goldman Sachs and JPMorgan each had a quarter without a single day of trading losses – a perfect game, to use the baseball analogy.
Goldman’s trading operations made at least $25 million every day in the quarter and topped $100 million of profit on more than 50% of sessions.