Wall Street Businesses Power Goldman, JPMorgan to Record Earnings -- Update

By Peter Rudegeair, Orla McCaffrey and Ben Eisen

A stock-market boom fueled by Reddit-reading individual investors and a burst of companies entering the public markets produced record quarterly profits at Wall Street's biggest banks.

Goldman Sachs Group Inc. posted records in quarterly revenue and profit. JPMorgan Chase & Co. notched its highest quarterly profit on record, driven by record revenue from trading stocks. Even Wells Fargo & Co., a minnow on Wall Street, enjoyed its best-ever quarterly profit in corporate and investment banking.

The party showed no signs of ending soon. Even after reporting a 73% increase in investment-banking fees, Goldman said the volume of coming transactions in that business at the end of the first quarter stood at a record level.

"Activity levels continue to be elevated from what I would say was a pre-Covid activity level by a meaningful amount," David Solomon, Goldman's chief executive, said on a conference call with analysts. "The environment, the monetary fiscal stimulus, and in addition the economic recovery, continues to paint a relatively constructive background."

The blockbuster results were the latest proof that in both good times and bad, Wall Street can thrive. When markets are chaotic, traders can still turn big profits. When the economy is flailing, bankers can help nervous companies raise cash or sell themselves.

Now, the U.S. economy appears to be poised for an upswing. Worries about what could undo both the economy and record stock markets -- inflation, hiccups in the rollout of coronavirus vaccines, concern that the tech companies that have powered markets higher are reaching their limits -- haven't stopped investment bankers and traders from making hay.

The quarter also continued the divergence between Wall Street and Main Street. Consumer-banking revenue was down 6% at JPMorgan and flat at Wells Fargo. Loan demand from consumers and businesses has been tepid. JPMorgan's outstanding loans shrank 4% from a year ago and Wells Fargo's fell 15%. Americans' finances still could deteriorate when government relief programs on mortgages and student loans run out.

Still, JPMorgan and Wells Fargo both released billions of dollars they set aside last year for potentially bad loans. The industry rushed to stock up on reserves when the coronavirus pandemic took hold in the U.S. But big losses so far haven't materialized, and bank executives are concluding that they had more set aside in rainy-day funds than they needed.

JPMorgan released $5.2 billion, compared with $2.9 billion in the fourth quarter of 2020.

"We expect the recovery to be robust in the second half of the year," JPMorgan Chief Financial Officer Jennifer Piepszak said on a call with analysts Wednesday morning. "And so if we continue to see that, if we continue to see labor markets recover, if we continue to see the vaccine rollout be successful, we would have future releases from here."

The first quarter of 2021 was a crazy one on Wall Street. Individual investors piled into seemingly random stocks including GameStop Corp. Armies of individual investors banded together in Reddit forums, driving up prices on a few companies and forcing hedge funds to take painful losses. Late in the quarter, Archegos Capital Management rattled the stock market when it and its banks began liquidating sizable positions in blue-chip stocks.

All the while, the blank-check boom that carried Wall Street in the fourth quarter continued to pick up speed. In the first three months of the year, more special-purpose acquisition companies went public than in all of 2020. SPACs put a reverse spin on the conventional model for public offerings because they raise money before developing a business. They use the funds to make an acquisition that turns the target into a public company.

Banks earn money on both sides of the SPAC equation -- underwriting the IPOs and advising on the mergers.

At Goldman, stock-underwriting revenue more than quadrupled to $1.6 billion, though Mr. Solomon said SPACs were responsible for less than 15% of that. At JPMorgan, equity underwriting more than tripled to $1.1 billion.

Goldman's investment bankers brought in a record $3.8 billion in fees arranging mergers and securities offerings. JPMorgan's investment bankers brought in $3 billion, up 57% and also a record.

Revenue from advising companies on mergers and acquisitions rose 43% at Goldman and 35% at JPMorgan.

Trading revenue jumped, particularly in stocks, where markets have hit highs. Goldman trading revenue rose 47% from a year earlier to $7.6 billion, thanks to a 68% increase in stock-trading revenue and a 31% jump in fixed-income-, currency- and commodity-trading revenue. At JPMorgan, trading revenue rose 25%, powered by record stock trading.

Archegos inflicted banks including Credit Suisse Group AG with big losses, but U.S. banks were mostly unscathed. Goldman was a large lender to the fund but was among the first to unload its assets when Archegos couldn't meet margin calls.

Wells Fargo's corporate and investment bank posted a 7% gain in revenue. Adjusted trading revenue jumped 19%. The division had a profit of $1.57 billion, its biggest since at least the beginning of 2019, when it first broke out results.

"We want to continue to build out the corporate investment bank as we've been doing in a very linear way," said Charles Scharf, Wells Fargo chief executive. The move would further diversify the bank, which has long been focused on consumers.

Goldman shares rose 2.3% and Wells Fargo shares climbed 5.5%. JPMorgan shares fell 1.9%.

Write to Peter Rudegeair at [e-mail], Orla McCaffrey at [e-mail] and Ben Eisen at [e-mail]

(END) Dow Jones Newswires

04-14-21 1643ET