It was back to normal on Wall Street last week, as though the banking crisis of the past year had never happened. Goldman Sachs declared second-quarter net profits rocketing up 89 per cent to $3.4bn (£2.1bn), while rival JP Morgan saw quarterly profits more than triple from $394m to $1.47bn.
But even bigger news was that bonuses are back big-time and Wall Street titans Goldman was predicting that pay this year is set to beat the boom levels enjoyed even before the financial crisis. If Goldman can maintain the growth levels reported so far this year, then staff are set to share total pay and bonuses of more than $22bn, which will mean they will earn huge amounts, just as they did in 2006 and 2007. In the event, Goldman's bankers will share $6.6bn for this period and they have set aside $11.4bn for pay for the first six months of the year. If the second half proves as good, it will pay out roughly $770,000 for each of the 29,400 workers – and maybe as high as $900,000 for the year.
Meredith Whitney, the star analyst who called the top of the banking industry in October 2007 when she warned that Citigroup was facing a capital shortfall of up to $30bn, added to the euphoria when she advised clients to get back into the share-buying market – and specifically back into Goldman Sachs. Not only did Whitney, now a bit of a media star in the US, tell CNBC viewers to expect the "mother of all mortgage quarters", but she predicted that Goldman would soar at least 30 per cent, so even she was surprised at just how good the results would be from fixed income, currencies and commodities trading.
Not everyone is celebrating. Financial analyst Max Keiser accused Goldman of running the US government, while US lawmakers attacked the firm for paying out juicy bonuses so shortly after the investment bank was rescued by the taxpayer. Mr Keiser, in the US magazine The Deal, described Goldman as "scum" and claimed it controls the Federal Reserve and Treasury, caused the financial crisis, and front-runs on every deal on the New York Stock Exchange.
But Goldman, used to such vitriol after a recent attack by Rolling Stone magazine, is defiant, arguing it has paid back the $10bn in taxpayers' funds it borrowed from the TARP scheme and paid out dividends to taxpayers. Analysts say Goldman chief executive Lloyd Blankfein has played a blinder by sticking to a business model which everyone deemed dead and broken only a few months ago. While rivals such as Morgan Stanley have cut back on risks, Goldman traders have been out making markets in their traditional areas.
At JP Morgan, chief executive Jamie Dimon reported equally fabulous figures, with record profits from trading and stock underwriting. JP Morgan put aside $14bn to pay its 229,000 staff for the first half and $6bn for the 25,700 investment bankers.
Even the UK felt the benefit – Wall Street's bonanza boosted UK banking stocks as investors anticipated banks would outperform expectations – shares in Barclays rose 9 per cent last week, while shares in RBS, due to report next month, are up over 7 per cent.Reuse content