What's going on here?
It’s earnings season for Wall Street banks… and while some had pretty good news to report, Goldman Sachs surprised markets on Wednesday when it announced that revenues at its once-lucrative bond-trading division had nosedived to their lowest in ten years.
What does this mean?
A number of Wall Street’s biggest banks actually reported billions in losses last quarter related to one-off tax payments under the new Trump tax code. Goldman, however, was remarkable for all the wrong reasons: it reported its lowest quarterly revenues since the 2008-09 financial crisis, thanks to dismal numbers from the parts of the bank that trade commodities, currencies and debt (think: bonds and loans).
Despite encouraging revenue growth in its investment banking division (e.g. advising big companies on mergers), the steep decline in trading revenues suggests to many that Goldman may need to take a long, hard look in the mirror. Shares in the bank were down over 2% on Wednesday.
Why should I care?
For markets: Other Wall Street banks did better.
Bank of America reported a total annual profit of $21 billion on Wednesday, its highest since the halcyon days before the financial crisis; Citigroup reported strong revenue gains in consumer banking and institutional lending. No such luck for Wells Fargo, alas, whose viability as a lender has been hit by a series of scandals related to overcharging and fraud. However, nearly all of these banks should eventually benefit from the recent tax reforms – despite some taking a short-term tax hit.
The bigger picture: Markets these days are somewhat calmer than they used to be – meaning there’s less money to be made in some areas.
Weakness in trading bonds has been a pretty constant theme for all banks in recent years. Goldman earned a paltry $1 billion from its bond-trading department last quarter; that’s nearly how much it used to earn every two weeks in 2009 (tweet this).