THE RECOVERY is proving unexpectedly bumpy for the big US banks.
Trading revenues have been crushed at Goldman Sachs, Citi and others, with bond and equity markets not behaving quite as expected.
That is a shame for many reasons – despite the obsessions of politicians and regulators who casually dismiss this work as “casino banking,” it is important banks’ overall operations are not hurt by losses here, and the customers that lie behind such trades can also suffer when losses are made.
Luckily, the big banks are still doing well because they have strong operations elsewhere.
It is these core businesses that are performing strongly and keeping banks’ heads up against the tide.
The valuable work investment banks do raising funds for businesses has been a big hit – Citi’s equity underwriting revenues are up 73 per cent and Goldman’s have more than doubled.
The recovery of the initial public offering market is a key indicator of economic health, and shows a healthy positive feedback loop – growth returns, IPOs are launched, gathering funds for investment, and so growth returns.
That is raising funds for the real economy, matching investors with opportunities and shows the core strengths of the system – and the opponents of big finance firms should remember the valuable activity these banks carry out so well.