December 13, 2010

Wall Street Sees Record Two-Year Revenue

Banning Wall Street bonuses favored by 70% of Americans. Related?

Wall Street’s biggest banks, rebounding after a government bailout, are set to complete their best two years in investment banking and trading, buoyed by 2010 results likely to be the second-highest ever.

Bloomberg reports the five largest U.S. firms by investment-banking and trading revenue--Goldman Sachs Group Inc., JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc. and Morgan Stanley--will likely have a better fourth quarter than the previous two periods, driven by equity underwriting and higher volume in stock and bond trading. Even if this quarter only matches the third, the banks’ revenue will top that of any year except 2009.

The news service says the surge has come after the five banks took a combined $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009 following the collapse of Lehman Brothers Holdings Inc. Since then, the firms have benefited from low interest rates and the Fed’s purchases of fixed-income securities.

“This is a once-in-a-lifetime opportunity for most of these banks, and I think they’ve recognized it as that,” Charles Geisst, a finance professor at Manhattan College in Riverdale, N. Y., who has written about Wall Street’s history, told Bloomberg. “The profits they’re making now will allow them to replenish their capital and take care of the other things they need to do.”

That may include beginning to return more of their profits to shareholders. The Fed issued guidelines last month on how it will decide whether large U.S. banks may increase dividends and buy back shares.

Banning Bonuses

On a related note, more than 70% of Americans say big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, a Bloomberg National Poll shows.

An additional one in six favors slapping a 50% tax on bonuses exceeding $400,000. Just 7% of U.S. adults say bonuses are an appropriate incentive reflecting Wall Street’s return to financial health.

A large majority also want to tax Wall Street profits to reduce the federal budget deficit. A levy on financial services firms is the top choice among more than a dozen deficit-cutting options presented to respondents.

The news service notes that with U.S. unemployment at 9.8%, resentment of bonuses and banking profits unites Americans across political, gender, age and income groups. Among Republicans, who generally are skeptical of business regulation, 76% support a government ban on big bonuses to bailout recipients; that’s higher than backing among Democrats or Independents.

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