As economic suffering grips regular Americans, Wall Street behemoths get ready to feast
For millions of regular Americans, the end of 2020 was marked by economic distress, with millions suffering pandemic-triggered job losses—and thus the loss of their employer-tied health insurance—still waiting on robust economic relief from federal lawmakers, and facing a weak social safety net.
For the nation's biggest banks, however, the year closed out with reason for celebration, and they're looking to take advantage of the banner year with a feast of stock buybacks.
As Axios reported Friday,
Banks cashed in on the white-hot IPO market, record debt issuance, and sky-high trading volume—all of which played out as economic peril softened the consumer side of their businesses.
The big picture: Financial results show that banks, which rake in money as middlemen, made a killing thanks to unprecedented action by the Federal Reserve—which caused a rush of activity in financial markets, pushed a slew of companies to issue debt, and led to a flood of others to go public for the first time.
Earnings were particularly sweet for banking behemoths including JPMorgan Chase, Goldman Sachs, and Morgan Stanley.
Reporting from Bloomberg on Tuesday gave a picture of the final quarter:
As the banner year for markets came to a close, JPMorgan Chase & Co. posted record profit in the fourth quarter, helped by a 20% increase in revenue from trading, a business where it already ranked No. 1 heading into the turmoil. At rival Goldman Sachs Group Inc., second only to JPMorgan in dealmaking, a flurry of transactions helped send its quarterly profit soaring 135%.
The results—from JPMorgan on Friday and Goldman on Tuesday—mirrored trends in many corners of industry and society during the shocks set off by Covid-19: The strong got stronger.
"Big banks' Wall Street business is booming," as the New York Times put it Friday. The banks signaled they may take advantage of that windfall by buying back shares—a practice the Fed last month allowed to resume last month and which critics say simply rewards wealthy shareholders but are essentially "manipulation of the stock market." From the Times:
What do banks plan to do with all that cash? "We have so much capital, we cannot use it," Jamie Dimon of JPMorgan told investors. The bank's cash pile has doubled over the past year, to more than $500 billion.
It's a similar story at other banks, and now that they've been cleared by regulators to resume share buybacks, "we're going to be aggressively buying back, and consistently," said James Gorman, Morgan Stanley's chief executive.
The reporting came as a new regulatory filing revealed that Dimon, a billionaire, was rewarded in 2020 with the same compensation as in 2019—$31.5 million.
"In determining Mr. Dimon's compensation, the independent members of the board took into account thefirm's strong performance in 2020 and over the long term, across four broad dimensions: Business Results; Risk, Controls, and Conduct; Client/Customer/Stakeholder; and Teamwork & Leadership," the company said.
At a conference call earlier this month, Dimon referenced the nation's growing wealth divide.
"We believe that inequality is a real problem," said Dimon, adding that "40% of Americans make $15 an hour or less."
Dimon also pointed to the fact with the new Biden administration, "there will be a new set of regulators," whom he expected would "be tougher" than those in the Trump administration.
President Joe Biden, according to reporting Friday, is considering naming former Obama Treasury Department official Michael Barr as the nation's top bank cop.
As head the Office of the Comptroller of the Currency, Barr would have the power to regulate banks like JPMorgan Chase.
Progressive groups like People's Action, however, have urged Biden to instead tap Mehrsa Baradaran, who teaches at the University of California at Irvine Law School and is an expert on the racial wealth gap. Bree Carlson, deputy director of People's Action, said in a statement Friday of Barr that "it's hard to imagine a worse pick," citing his ties to Wall Street and Silicon Valley corporations as reasons for his disqualification.
"President Biden must prove to voters that the government cares about all of us, not just wealthy elites," said Carlson. "If Biden truly wants to 'Build Back Better,' he needs to lock the revolving door and ensure no one with ties to the financial industry is in charge of regulating it."
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