Goldman Sachs and Citigroup have become the latest banks to report higher quarterly earnings, as rising interest rates boost trading revenues and Donald Trump promises regulatory relief.
But Citigroup’s Michael Corbat won’t be celebrating just yet after the company once again missed the annual performance targets he laid down in 2013.
It’s not easy to generate returns on investments when interest rates are next to zero and regulations are discouraging risk-taking, so it’s been a challenging couple of years for banking CEOs. Those more successful have buoyed profits by cutting costs, but top line growth is now back in the frame, too.
Recent interest rate rises by the Federal Reserve, and the promise of more, have combined with Donald Trump’s election in November to boost trading volumes in bond markets.
That helped drive a four-fold increase in fourth-quarter earnings at Goldman Sachs. Citigroup, meanwhile, posted a 7% rise in income. Bank of America, JPMorgan and Morgan Stanley also have reported higher profits.
Goldman Sachs CEO Lloyd Blankfien said Trump couldn’t take all the credit for the recent rise in stock prices, arguing positive growth drivers in the economy were already baked into the market.
“I think one of the reasons why the election had such a dramatic effect is because it was drawing people in the direction that [the market] was already heading,” he said from the World Economic Forum in Davos, Switzerland.
Still, he acknowledged Trump had a stimulative policy platform that was adding an extra layer of investor confidence. “The basic bones of the U.S. economy are good,” he said, noting that corporations and households have reduced debt levels, unemployment has dropped and wages are growing.
Citigroup has a much larger international presence than its local rivals, exposing it to other economies that haven’t been recovering quite as well as the U.S. It also is still suffering most from the regulatory hangover left by the financial crisis. The bank needed more than $45 billion in government bailouts, leaving it lagging its peers in capital returns and share-price performance.
The trading environment is not as good as the bank would like, Corbat told investors Wednesday, while again asking for their patience.
“At this point, no one actually knows what would become of U.S. policy,” he said. “But I believe there are pent up and capital investment opportunities which corporates are poised to act on given the right circumstances. This could boost GDP growth in the U.S. and beyond, given the significance of our economy globally.”