WALL Street bank giants today kicked off the latest reporting season with the figures that give a painful demonstration of the gap between the present status of New York and London as financial centres.
They reported profits of billions that should translate to high tax revenues for the US government – and tasty bonuses for New York bankers.
JP Morgan made a record third quarter profit of $4.33 a share on revenue of nearly $41 billion. The profits of $13.15 billion smashed analyst forecasts.
JPM, led by Jamie Dimon, perhaps the most powerful banker in the world, has been a leading voice in getting bankers back into offices. He warned on the future given events in Gaza.
“The war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships,” Dimon said. “This may be the most dangerous time the world has seen in decades. While we hope for the best, we prepare the firm for a broad range of outcomes.”
Citigroup, led by Britain’s Jane Fraser, the first woman to lead a major US bank, also reported figures way ahead of expectations. Revenue rose 12% to $10.6 billion.
That will put a harsh light on the UK banks who have missed out on large flotations and seen a dearth of activity put City jobs at serious risk.
One trader complained that given the outbreak of fighting in Israel, the only busy bankers this week were the oil desk.
Daniela Hathorn, Senior Market Analyst at Capital.com, said: “The UK hasn’t been competitive for IPOs in years, if not decades. I guess the gap is getting wider but that’s been a long-running process as the UK has receded as an economic and political power.”
She added: “UK consumers have also been facing a tougher cost of living crisis. Throw in labour shortages brought on by Brexit and then again by Covid, and you have a perfect cocktail to numb wages and put added strain on domestic inflation. This, coupled with high rates and cost of capital, is likely to have affected UK banks more than the bigger US banks.”
Next week Goldman Sachs, Morgan Stanley and Bank of America will report results that will also put UK banks such as HSBC, Barclays and Lloyds in the shade, even though HSBC and Barclays have significant US arms.
There are growing calls in the City and in government circles for a reform of UK listing rules to make London more attractive. CEOs complain that they can get a much higher rating for their stock in New York.
Today a survey from Peel Hunt of 500 leading City figures called for billions of pensions and ISA cash to be deployed to help reverse the decline in the London equity market. They also want ambitious tax breaks on share ownership.
Charles Hall, head of research at Peel Hunt, said: “Our findings make plain that there is more that can be done to reverse the dispiriting trend of companies leaving the London market in recent years. There are simply fewer companies to buy shares in at a time when there is billions in retail capital which could be used to back small businesses and grow the economy.”
He added: “If the Chancellor is really serious about turning around that trend, then he has a variety of tax levers to pull to turn a vicious spiral into a virtuous circle. Politicians need to be bolder to put the UK’s economic engine back into top gear.”
Not everyone in the City is so gloomy.
Russ Mould at AJ Bell said: “When you look at JP Morgan’s share price, up by 40% in the past twelve months, it is easy to be lulled into a sense that all is well with America’s banks, its capital markets and its economy, especially as the S&P 500 index is up by around 15% this year and the NASDAQ by nearly a third. Yet the reality may not be quite so straightforward. It is barely six months since three of the largest banking failures in American history – Silicon Valley Bank, First Republic Bank and Signature Bank.”
Joshua Mahony, chief market analyst at Scope Markets, notes that not all New York floats have gone well.
“The flops for both the ARM and Birkenstock IPOs highlight that Wall Street isn’t always paved with gold, but we’re seeing an notable upswing in risk sentiment now that those US bond yields are backing off from 10 year highs. A key point to watch with the US banks will be default rates, with speculatuon rife around increased bad loan writedowns.”
