Americans are facing a global pandemic and an economy mired with layoffs and bankruptcies, but one institution is profiting from this apparent breakdown of society: Wall Street.
JPMorgan Chase & Co. — the largest bank in the U.S. — reported its highest quarterly earnings ever this week at $33.8 billion. Goldman Sachs reported its second-highest quarterly revenues ever at $13.3 billion according to NPR. Wells Fargo and Citigroup also raked in billions of dollars in year-to-date revenue.
The reasons behind Wall Street’s success amid the coronavirus pandemic and a slouching economy can largely be attributed to a record-setting revenue from stocks and bonds as well as investment banking fees.
During the initial weeks of the coronavirus outbreak, economic spending came to a virtual halt and entire industries were severely constrained by the fallout, according to Reuters. American stock markets reportedly plunged nearly 10% in March with the biggest single-day loss since the 1987 market crash.
The Federal Reserve then moved to stabilize American markets with a liquidity injection worth roughly $1.5 trillion in short-term loans, Reuters reported.
These efforts to bolster credit markets helped bond trading and allowed institutional investors to hedge against losses, CNBC reported. “The Fed has been able to engineer a huge bounce-back in the markets by injecting trillions of dollars, benefiting investment banks primarily,” Opimas chief executive Octavio Marenzi told CNBC.
JPMorgan saw its markets revenue jump by 79% over last year to a record $9.7 billion, according to the bank’s second quarter report. JPMorgan also reported its revenue from fixed-income markets increased 99% and revenue from equity markets increased 38%, compared to last year.
Goldman Sachs reported its per-share valuation to be $6.26, far above what analysts had predicted, CNBC reported. Goldman Sachs also brought in $2.94 billion from equities and stock trading, the best performance recorded by the company in 11 years according to the bank’s second-quarter report.
Wells Fargo faced a net revenue loss of $2.4 billion compared to last year, according to the bank’s second-quarter report. However, market-sensitive revenue still brought in $1.6 billion dollars, which was primarily due to an increase in net gains from equity securities.
Citigroup also faced a net revenue loss of $3.5 billion compared to last year, according to the bank’s second-quarter report. Still, its market and securities services revenues increased 48% over last year to $6.9 billion. Citigroup’s fixed income market revenues increased 68% while its equity markets and securities services revenues dipped slightly.
A stabilized market eventually opened up debt markets for high-risk firms to sell bonds and issue equity more aggressively, according to CNBC. This allowed Wall Street’s biggest players to charge higher investment banking fees. (RELATED: Brooks Brothers Files For Bankruptcy After 202 Years Of Business)
Investment banking generated $2.66 billion in the second quarter for Goldman Sachs and was primarily driven by fees.
JPMorgan recorded a 91% increase in its investment banking revenue and raked in $3.4 billion. Much of that revenue was reported to be driven by a 54% increase in investment banking fees.
Wells Fargo recorded a 13% increase in its investment banking revenue and brought in $6.6 billion, according to the bank’s second-quarter report. Even with a lower net interest income Wells Fargo was able to offset initial losses with higher investment banking fees.
Investment banking revenues increased 37% for Citigroup and brought in $1.8 billion. Citigroup’s global consumer banking revenues were apparently boosted by an increase in third-party collection fees.
As Wall Street tycoons set new records and cash in billions of dollars amid the pandemic, Main Street workers and small business owners are barely hanging on.
The Congressional Budget Office projected in June that the coronavirus would cost nearly $8 trillion over the next decade, Forbes reported. One of the reverberating effects of this economic devastation was the spike in unemployment from a 50-year low of 3.5% in February to 11.1% in June, according to Fortune.
The Bureau of Economic Analysis also reported a 13.6% decline in consumer spending, a forecast that could see roughly $1.8 trillion of annual spending vanish in an economy that depends highly on consumer spending, according to CNN. (RELATED: US Manufacturing Shutdown Approaches WWII Demobilization Levels)
The combination of a spike in unemployment and a dip in consumer spending has been particularly devastating for small businesses, which account for 44% of economic activity. A range of industries from restaurants to light manufacturers have reported huge losses in revenue and difficulty in retaining employees, The New York Times reported.
A study from The Washington Post revealed more than 100,000 small businesses have shut down entirely. Economists projected that 2% of these businesses and 3% of restaurants will close forever because of the pandemic.
State government-mandated lockdowns have also increased financial constraints on small businesses. Mick Larkin, the owner of a karaoke club in Texas, told The New York Times that the state’s lockdown order could kill his business. “We did everything we were supposed to do,” Larkin said. “I can’t keep doing this.”
The federal government implemented the Paycheck Protection Program (PPP) in late March in order to keep small businesses afloat and workers on the payroll. The Small Business Administration used the program to give out tens of billions of dollars in loans.
However, a study of small business owners conducted earlier this month found that 84% of respondents would run out of their PPP funding by August, according to The Hill. Only 37% said their businesses would be able to survive another wave of closures. (RELATED: POLL: 22% Of PPP Loan Recipients Will Still Have To Lay Off At Least 1 Employee)
Coronavirus forecasts do not generate much optimism, as the outbreak is expected to grow going into the fall, FiveThirtyEight reported. The persistence of lockdowns and an economic slump over the next several months could force many more businesses to go under.