NEW YORK • Evidence is mounting that Wall Street's top investment banks spent the pandemic building up their leads.
As the banner year for markets came to a close, JPMorgan Chase & Co posted a record profit in the fourth quarter, lifted by a 20 per cent rise in revenue from trading, a business where it already ranked No. 1 heading into the turmoil.
At Goldman Sachs, second only to JPMorgan in deal-making, a flurry of transactions helped boost quarterly profit by 135 per cent.
The results - from JPMorgan last Friday and Goldman on Tuesday - mirrored trends in many corners of industry and society during the shocks set off by Covid-19.
The strong got only stronger.
The latest snapshots from Wall Street are emerging on the eve of Mr Joe Biden's inauguration as president and amid the ascent of Democrats in the Senate and atop regulators, where critics may more closely scrutinise how companies succeeding in such bleak times use their profits.
"What you're seeing is some institutions like JPMorgan and Goldman Sachs were well positioned for what's going on," said Mr Mark Doctoroff, global co-head of financial institution coverage at Mitsubishi UFJ Financial Group.
"It was a foregone conclusion that investment banking fees and trading were going to be higher, and of course that will benefit the JPMorgans and Goldmans versus the consumer-oriented banks like Bank of America or Citigroup."
For the year, JPMorgan collected US$29.5 billion (S$39.1 billion) in revenue from trading. That was about US$8.6 billion more than Citigroup's haul, the largest gap between the pair since at least 2011, according to data compiled by Bloomberg.
JPMorgan's deal makers and underwriters increased their market share to the highest in a decade, chief financial officer Jennifer Piepszak told analysts.
Goldman's deal makers boosted its investment banking fortunes by US$2.3 billion, a 34 per cent increase that was the biggest among the bank's rivals. Its revenue from equity underwriting tripled.
Their earnings strength overshadowed results at Citigroup and Bank of America, which released a combined US$2.3 billion from loan-loss reserves in the fourth quarter as consumers and corporations kept up with borrowings.
The equivalent of S$39.1 billion that JPMorgan collected for the year in revenue from trading. That was about US$8.6 billion more than Citigroup's haul, the largest gap between the pair since at least 2011, according to data compiled by Bloomberg.
How much Goldman's deal makers boosted the firm's investment banking fortunes by, a 34 per cent increase that was the biggest among the bank's rivals. Its revenue from equity underwriting tripled.
How much Citigroup and Bank of America released in total from loan-loss reserves in the fourth quarter as consumers and corporations kept up with borrowings. That helped both companies post earnings that topped analyst expectations.
That helped both companies post earnings that topped analyst expectations.
But JPMorgan chief executive Jamie Dimon argued that the profits produced from releasing reserves were not meaningful.
"We're not going to be sitting here cheering about that, we're cheering that Americans are doing better, but we don't consider that earnings," he told analysts on a conference call last week.
Morgan Stanley, the smallest of the six US banking giants, was set to report quarterly results yesterday.
'UNLIKELY TO BE REPEATED'
There are signs that such success may beget problems for Wall Street in an era in which coronavirus cases keep shaking the economy, leaving millions jobless.
Ohio Democrat Sherrod Brown, incoming chairman of the Senate Banking Committee, already has suggested he would like to hear more regularly from the leaders of the country's largest banks.
"They have a lot of power, and we need to know more about how they do their business," he told reporters this month. "The more we hear from them, the better."
Meanwhile, the question is whether JPMorgan and Goldman can continue to widen the gulf between them and their rivals.
Goldman said its backlog for investment banking has increased "significantly", driven by activity in advisory and equity underwriting. JPMorgan said markets have remained active and that it has seen a "strong performance since the start of January".
But a capital markets record in unusual times raises the bar higher for setting the next one.
Said Mr Jim Shanahan, a senior equity research analyst at Edward Jones: "There could be some drivers from the capital markets standpoint that just seem unlikely to repeat."