Q2 earnings kicked off in earnest this week, and big banks have provided further proof of the strategic benefits of diversification. The second quarter was expected to be the banks' biggest test in over a decade. Facing soaring unemployment, and with businesses preparing for what could possibly be a deep, sustained downturn, investors entered earnings season with caution.
However, we have seen JPMorgan shares jump on the back of stronger than expected capital markets results, with fixed-income trading revenues surging 99%, while the other Morgan saw a nearly 170% increase. At Citi, trading revenue climbed almost 60% in the quarter. Goldman Sachs fared even better; its quarterly revenue was the second-highest on record at $13.3b. Its traders and investment bankers posted near-record revenue to keep firm wide profits steady. In fact, Goldman is in a better position to weather this first leg of the crisis precisely for lacking a big mortgage or credit-card business, which reduces exposure to unemployment surges or extremely low interest rates.
Fintech has played its catalytic role, as the “tech” continues to allow for greater “fin” efficiency. With traders increasingly able to work remotely, access to information becoming more pervasive and floors going fully virtual (not to mention the start of decentralized solutions), the horizon of possibilities has widened since 2008, despite increased regulatory restrictions. Had Covid-19 hit a decade earlier, it is difficult to imagine a similarly functional (and socially distant) response.
Nevertheless, while diversification is benefiting the bulge brackets in the form of stellar trading results, we are simultaneously seeing these same players set aside record amounts for loan losses. Let’s not forget that a sustained recession would eat into capital reserves as loans go bad, and this could happen at an alarming pace. Regardless of the Fed’s best efforts, the money printer can only go brrrr for so long. And as time goes on, the same sound might introduce the start of a long winter.
Is Winter Coming Early?
Goldman’s traders, bankers keep profit steady while rivals falter - Goldman is considered to be in a better position than larger commercial banks to weather at least this leg of the crisis. Without a big mortgage or credit-card business, it is less exposed to an increase in unemployment or ultralow interest rates. Read more
Three US banks set aside record $28b for loan losses - The pain was partly cushioned by a boom in trading, with JPMorgan fixed-income trading revenues surging 99%. Fixed income trading also rose sharply at Citi, with trading revenue climbing almost 60% in the quarter. Read more
Trading set to triumph in US banks’ second-quarter earnings - Frenzied trading around the coronavirus crisis has boosted markets revenues, while Goldman and Morgan Stanley have also profited from their limited exposure to the widespread loan losses stemming from the pandemic that will set them up to triumph over their Main Street rivals. Read more
Charles Schwab says retail trading kept booming in second quarter amid market comeback- The major online brokers — Charles Schwab, TD Ameritrade, E-Trade and Robinhood — have seen new accounts and trading activity surge this year during the coronavirus recession. Schwab, however, missed on the top and bottom lines of its second quarter earnings, which calls into question the sustainability of the zero-fee model it has pioneered. Read more
Bond - San Francisco based enterprise-grade financial technology platform streamlining the integration between brands and banks raised $32m in Series A funding led by Coatue. Read more
Digital Asset - New York based creator of open source DAML smart contract language raised an undisclosed amount from VMware as part of its Series C round. Read more
Hummingbird RegTech - San Francisco based provider of anti-money laundering (AML) compliance technology raised $8.2m in Series A funding led by Flourish Ventures. Read more
Lanister - London based banking alternative raised £15m in new funding led by Milaya Capital. Read more
Layer - Berlin based productivity platform for spreadsheets raised €5m in Seed funding led by Index Ventures. Read more
Metaco - Swiss based digital asset infrastructure startup raised $17m in Series A funding led by Giesecke+Devrient. Read more
Moneybox - U.K. based savings and investment app raised £30m in Series C funding led by Eight Roads and CNP. Read more
Privacy.com - New York based virtual card payment startup raised $10.2m in Series A funding led by Teamworthy Ventures. Read more
Ravelin - London based company using machine learning to help companies fight fraud when accepting online payments raised $20m in Series C funding led by Draper Esprit. Read more
Robinhood - San Francisco based no-fee digital brokerage raised $320m in Series F funding from new and existing investors including TSG Consumer Partners and IVP. Read more
TradeDepot - Nigeria based e-commerce startup which connects international brands to small businesses in Africa raised $10m in pre-Series B funding led by Partech, International Finance Corporation, Women Entrepreneurs Finance Initiative (We-Fi) and MSA Capital. Read more
Warren - Brazil based digital brokerage raised $22.2m in Series B funding led by QED Investors to further improve the platform and customer experience. Read more
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