The banking industry is doing badly. Negative interest rates and high costs to meet the requirements of regulators make it difficult for many financial institutions to make a profit.
Yet right now, many of the largest US banks have managed to generate the best profits in their corporate history. How can that be?
The US banks continue to operate investment banking on a large scale. Were it even after the profit-maker 20 years ago, the investment banks fell into disrepair after the credit crunch in 2007 and have inflicted huge losses on the banks.
The major risks associated with investment banking were no longer bearable for many banks in Europe and were largely separated from this field of business.
Now the US banks seem to know better how to deal with the risk because now it seems that this business area is becoming the record profit driver.
This is very much in line with the historically strong M&A activities that we have seen in the year 2021. For every major transaction, you need an investment bank that will reward you for their services. On the other hand, there has been significantly less credit default in the credit business.
Banks have to recover high returns for possible losses for such risks.
In the event of a credit default, these repayments can be re-booked and thus significantly improve the bank's capital position. From up to USD 50 billion, this is the reason that banks no longer need risk aversion. For the current fiscal year 2022, the Fed has announced that it will raise the bar three times. A new source of money for banks worldwide is emerging.
Big banks such as Goldman Sachs, Morgan Stanley or JP Morgan are forecasting figures for the fourth quarter of 2021 in the coming weeks, and analysts are keen to set new records. Alone at the US Federal Reserve Citi, analysts do not yet agree on the company's performance for the past financial year.
Experts assume that it will probably take years before we hear such good company figures from the top banks again.
Do you ever notice the following data for the Q4 company figures of the US banks: Citigroup and JPMorgan are on January 14th. Goldman Sachs on January 18 and Morgan Stanley and Bank of America on January 19.