Shares in Goldman Sachs sprang out of bed in New York yesterday, as traders reacted to first-quarter results that were not quite as miserable as Wall Street had been expecting. Lowering expectations ahead of a dreaded event is a tried and tested method, within and beyond the business world, and it has worked a treat for America’s biggest lenders.
Alongside Goldman, JP Morgan and Bank of America have also seen their stock climb healthily during this current results season, and all three investment banking behemoths have moved above their end-of-January share prices since recovering from February’s terrifying sector-wide rout.
Yet this rosy picture must be viewed through sceptical glasses, for the figures that underpin the banks’ first quarter results make for grim reading. Goldman’s revenues were down 40 per cent compared to the same period last year, with profits cut in half.
Stark double-digit drops were laid bare throughout these giants’ latest reports, from JP Morgan’s 13 per cent fall in revenue from fixed-income trading, to Bank of America’s 18 per cent decline in bond, currency and commodities trading. Eye-watering volatility across global trading floors has taken its toll during a bleak period for lenders. Exposure to the energy sector has not helped, while rock-bottom interest rates continue to chip away at margins.
The effect has been felt on both sides of the pond, and in various corners of the sector. UK investment banking revenue was down 21 per cent at the start of 2016 according to figures published by Dealogic yesterday, with a relatively meagre $1bn (£695m) in sales representing the weakest quarter since 2012. Unfortunately, the outlook is not promising.
The IMF recently warned of “significant challenges to attaining sustainable profitability” at banks, and said that the industry’s woes could have a negative knock-on effect on the wider economy. A report by KPMG, meanwhile, predicts more mega-fines and an ongoing fallout from bad debts.
The first-quarter from America’s banking giants could have been a lot worse, and investors appear to believe that there’s light at the end of the tunnel – but for those workers facing sweeping job cuts, a share price recovery offers little consolation.