As Donald Trump moves into the White House on Monday, companies across the United States are taking stock of what the new administration means for them. For tech companies, that seems to mean a lot of groveling. For Wall Street, that means soaking up a lot of extra profits.
Fourth-quarter results from the big banks on Wednesday set the tone. JPMorgan's earnings rose 54% year over year, no mean feat for the country's largest bank. Goldman Sachs' profits jumped 71%, while Citigroup swung from a loss to $2.6 billion as boss Jane Fraser grapples with a difficult turnaround. The economy appears to be in good shape - although only one brave bank boss said otherwise as the new commander-in-chief takes office.
It would be hard to find a business whose businesses have not experienced a preemptive blow from Trump. Interest income remains at historically high levels as the gap between the short-term rates at which banks borrow and the long-term rates at which they lend has widened. Roughly speaking, this portends lower interest rates today and higher inflation in the future. Savers - for reasons the banks can't quite explain - appear prepared to accept far less interest than they would in a truly competitive world. JPMorgan expects to bring in $94 billion in net interest income this year, compared with $91 billion expected by analysts polled by LSEG.
Volatility is the real gift. Trump will bring a lot, which will boost stock exchange results. These are already defying gravity. Before Covid-19, the five largest banks would earn about $80 billion in a good year. That amount has actually risen to a record $116 billion, despite several years of warnings from executives about "normalization" ahead. That's assuming Morgan Stanley and Bank of America, which haven't yet reported, match analysts' expectations.
For bosses like JPMorgan’s Jamie Dimon and Goldman Sachs’ David Solomon, the expectation is now for less regulation and more trading. Of course, banks think they deserve less red tape. JPMorgan Chase & Co. treasurer Jeremy Barnum said the bank is looking forward to less rulemaking that is “instinctively anti-bank.”
So Monday should be a good day for Wall Street. While tech giants like Apple’s Tim Cook and OpenAI’s Sam Altman are funding Trump’s inauguration campaign — and even if it turns out to be effective, it’s a no-brainer A subtle gesture — but banks can buy off friends in a different way: by returning cash to shareholders.
Morgan Stanley analysts calculated last week that the capital of large publicly traded banks exceeded regulators' minimum requirements by $159 billion. JPMorgan Chase alone has about $50 billion spent on buybacks and dividends, according to data on Wednesday. This is a more transparent way to win the favor of important people.
john.foley@ft.com