International Forecaster Weekly

TOO BIG TO FAIL BANK PROFITS SOAR - Also, Consumer Sentiment Falls as Retail Sales Rise…Go Figure!

And the winner is…

Mega money beast Goldman Sachs took back the crown for the top equity trading desk on Wall Street.

Revenue at the too big to fail bank edged out that of competitor Morgan Stanley, which is usually Number One.

Guest Writer | October 27, 2021

By Dave Allen for Discount Gold & Silver

And the winner is…

Mega money beast Goldman Sachs took back the crown for the top equity trading desk on Wall Street.

Revenue at the too big to fail bank edged out that of competitor Morgan Stanley, which is usually Number One.

Goldman's expanding prime brokerage business, which handles trades for hedge funds, is one reason for the surge.

It helped put Goldman Sachs — the last of the big banks to report earnings — over the top. 

            The year isn't over, and 2021 is already its best ever in terms of overall revenue and profit, according to its CEO David Solomon.

It matters because frenzied markets, blockbuster M&A activity and an IPO boom have thrust the big banks to record-breaking quarters.

That’s made their rock-star Wall Street divisions the rebound standout, while another reality plays out for Main Street-facing businesses — uninspiring consumer lending at mega peers JPMorgan, Bank of America and Citigroup.

The too big to fail banks — Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and JPMorgan — collectively had one of the most profitable quarters ever, with a total of $32 billion, according to FactSet.

That tops the $22 billion in profits the group raked in this time last year. Early in the pandemic, profits were down as banks socked away tens of billions of dollars to prepare for a wave of bad loans that never came.

Since then, the banks have been releasing that money to help their quarterly earnings reports. Make no qualms about it, these huge and profitable banks have had a plethora of nefarious activities.

In 2019, for instance, we learned how JPMorgan Chase’s Private Bank continued to retain the late sexual predator Jeffrey Epstein as a client, even after he pled guilty to soliciting sex from a minor and was jailed.

And, of course, JPMorganChase is a five-time felon, having accepted regulators’ findings and fines.

A few years earlier, in 2016, McClatchy newspapers noted that “the Panama Papers are full of examples of the wealth-management and ‘private banking’ divisions of U.S. and global banks working with customers to hide their assets elsewhere. 

Banks listed in the documents – including Citigroup, Morgan Stanley, Wells Fargo, Merrill Lynch and SunTrust – declined to comment at the time.

Citibank’s Private Bank was previously the subject of an investigation by the Senate’s Permanent Subcommittee on Investigations. 

At a hearing in November 1999, the Chair of the subcommittee, the late Senator Carl Levin, explained how private banks work:

“Once a person becomes a client of a private bank, the bank’s primary goal generally has been to service that client.

“And servicing a private bank client almost always means using services that are also the tools of money laundering: secret trusts, offshore accounts, secret name accounts, and shell companies called private investment corporations. 

“These private investment corporations, or PICs, are designed for the purpose of holding and hiding a person’s assets. The assets could be real property, money, stock, art, or other valuables. 

“The nominal officers, trustees, and shareholders of these shell corporations are often themselves shell corporations controlled by the private bank. 

“The PIC then becomes the holder of the various bank and investment accounts — and the ownership of the private bank’s client is buried in the records of so-called secrecy jurisdictions, such as the Cayman Islands.”

Retail Sales Shock the Seers Again

The strength of retail sales data has shocked forecasters for the second straight month.

Although September spending was lower than the peaks reached in the spring, consumers still spent more than economists had expected.

Total retail sales grew 0.7% in September from the prior month — compared with consensus estimates for a decline of 0.2% — according to government data out last Friday.

The same thing played out in August when sales rolled in at a revised 0.9% increase relative to expectations for a 0.7% decline.

Higher prices helped push up the absolute consumer spending numbers. But inflation or not, consumers were willing to fork over cash (or their credit cards).

And that could bode well for the 4thquarter economy and the coming holiday shopping season.

The intrigue lies within consumer sentiment surveys that have continued to baffle forecasters.

The Conference Board's closely watched Consumer Confidence Index declined in its last three readings; the University of Michigan Consumer Sentiment Index has been plummeting since July.

“I think there was probably too much emphasis put on some of those surveys,” observes BMO Wealth Management’s CIO Yung-Yu Ma.

Inflation led to consumer prices that were 0.4% higher on average in September than they were in August — or more than half the rate of retail sales growth.

An extreme example of how this plays out…spending on automobiles was up 0.5% during the month. But the number of individual sales was down 6.2%.

In other words, people weren't buying more cars. But they were paying more for fewer of them.

Ma believes, “Inflation is going to have an effect, but the numbers still point to healthy demand; spending isn’t falling off.”

LPL Financial equity strategist Jeffrey Buchbinder added, “The retail sales numbers are encouraging in the face of elevated Delta variant cases in September and supply chain issues many companies are facing.”

But the positive spending data is probably not enough to move the needle back up on overall 3rd quarter consumption and growth estimates.

Again, up soon…the holiday spending season. 

Ma thinks a lot of the challenges with the holiday season are simply going to be more supply related. “People have money and want to spend savings that’s been built up.” We shall see.