Wall Street gets a Donald Trump windfall as Goldman Sachs and Citigroup profit from volatile trading

Bond trading revenues tripled at Goldman as investors placed bets on the direction of interest rates following the US election

Goldman Sachs is one of the major city firms helping fund the 'In' campaign (AP)

Goldman Sachs and Citigroup both reported fourth-quarter profit that surpassed analysts’ estimates as a bond-trading revival spurred by Donald Trump’s surprise victory lifted earnings across Wall Street.

The two firms were the last of the major US banks to report results, with JPMorgan, Morgan Stanley and Bank of America posting gains as investors placed bets on the direction of interest rates and the economy after the November US election. Citigroup’s profit rose 7.1 per cent on a 36 per cent jump in fixed-income revenue, while earnings at New York-based Goldman Sachs more than tripled, with bond trading up 78 per cent.

Citigroup chief executive Michael Corbat and Goldman Sachs boss Lloyd Blankfein have been cutting costs and restructuring management to adjust to stricter capital requirements and a revenue downturn since the financial crisis. Goldman Sachs’s 2016 revenue was the lowest in five years, though investors and analysts are speculating the firm’s trading operations could be one of the biggest beneficiaries of Mr Trump’s policies.

“The benefits from higher interest rates, accelerating capital deployment and historically low credit costs have been evident throughout the large-cap US bank earnings releases,” Marty Mosby, an analyst at Vining-Sparks IBG, said in a note. “The fundamental story remains intact.”

Goldman Sachs was the biggest gainer in the Dow Jones Industrial Average since the 8 November election, surging 30 per cent to Tuesday, and the KBW Bank Index of 24 US lenders advanced 20 per cent.

Fourth-quarter net income at Goldman Sachs rose to $2.35bn (£1.91bn) from $765m a year earlier. Earnings at New York-based Citigroup climbed to $3.57bn from $3.34bn.

Citigroup’s revenue from handling bonds, currencies and commodities was $3.01bn in the quarter, excluding an accounting adjustment from that period. That was the highest since before the financial crisis, according to data compiled by Bloomberg, and better than the $2.83bn estimated by analysts. Goldman Sachs’s fixed-income revenue climbed to $2bn, exceeding the $1.59bn estimate.

Citigroup chief financial officer John Gerspach said on a conference call that “good client activity” continued into the first weeks of January.

In equity trading, Citigroup’s revenue rose 15 per cent to $694m, while Goldman Sachs’s fell 9.2 per cent to $1.59bn.

The UK’s Big four banks -- Lloyd’s, Barclays, HSBC and Royal Bank of Scotland -- are all due to report earnings in the third week of February.

Bloomberg