Wall Street Is Thriving on Chaos — Will It Last?
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Market volatility drives record bank trading revenue
“Now, on the trading side that you mentioned, yes, the war did help. I do think, though, that trading was already tracking—the markets businesses were already tracking to pretty good results even before the war. On average, I think you had 17% year-on-year growth overall. As you mentioned, equities was a particular standout. I think one of the big questions, though, as we go forward is how durable these results are, especially in markets.”
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Corporates view volatility as a permanent feature
“Historically high volatility has not been good for investment banking, but it has been good for sales and trading. But right now, we're hitting on all cylinders where trading results are really strong and benefiting from volatility, but it's not undermining deal-making. I think a lot of corporates have now come to the conclusion that volatility may be a feature of the system as opposed to a bug and have to continue investing and raising capital and doing deals.”
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Prime brokerage provides durable bank revenue growth
“But the business has changed some, so it's not just intermediation, which you're talking about, but there's a financing piece of it. Things like prime brokerage and where investment banks are providing loans to hedge funds, that has grown a lot. If you look at the segment disclosures, for example, and you look at the markets businesses and the size of the balance sheets of these businesses, they are growing quite a bit. And that tends to be a little bit more durable than the intermediation side.”
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Consumer spending remains stable in E-shaped economy
“Unemployment is really important here. As long as people are employed and wages are going up, they're spending. We hear a lot about the two-speed economy and the K-shaped economy. I think a better way to frame it is an E-shaped economy, where the high end is growing more, spending more than the low end. But there's no delta, there's no inflection in terms of the trends right now. There's not a worsening at the low end. It's kind of stable.”
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Bank CEOs remain cautious despite record profits
“In the earnings call, several of the CEOs struck a notably cautious tone as geopolitical uncertainty lingers. Jamie Dimon warned of wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices. Goldman Sachs CEO David Solomon also pointed out heightened uncertainty in parts of private credit and the conflict in the Middle East. And Citigroup CEO Jane Fraser warned that one great first quarter does not a full year make.”