Banks’ problem with success

By Ben Walsh
July 16, 2013

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Things are almost too good for US banks right now, Tom Braithwaite argues. Goldman Sachs is the prime example: it handily beat expectations for its quarterly earnings today, making $1.93 billion in profit. That’s double last year’s number. Wells Fargo’s second quarter earnings were $5.5 billion, up 20% from a year ago. And JP Morgan’s profits in the second quarter jumped 31% to $6.5 billion; the bank is now on track to earn $25 billion this year — that’s basically $100 million every working day. Even the phrases “Citigroup earnings” and “soundly beat Wall St expectations” are now appearing in the same sentence.

The problem, Braithwaite writes, is that these are the exact banks who “have spent a lot of time, energy and money warning of the potential ill-effects of ramping up regulation”. Kevin Roose doesn’t think we should pay attention to what bankers had to say about regulation at all.

Despite its earnings surge, Goldman stock closed the day down 1.7%. Citi research analyst Keith Horowitz did his best McKayla Maroney, calling the results “a relatively low-quality beat”. Stephen Gandel points out that “nearly all of Goldman’s businesses were down from the first three months of the year”. Goldman did, however, succeed in reducing its tax rate to 27% from 32% by shifting some profits overseas.

When the issue of looming leverage requirements came up on the company’s conference call, Goldman CFO Harvey Schwartz would only say that he was “very comfortable with where we are”. Where, precisely that is, Schwartz didn’t say.

David Weidner says little has changed at Goldman, which is demonstrating a distinct “lack of disclosure regarding what kind of risk-taking the firm is engaging in or Goldman’s capital buffers”. Matt Levine suggests banking is a “business of optimizing yourself around regulation”, and that Goldman is choosing to withhold specifics until the regulation is finalized. — Ben Walsh

On to today’s links:

Bold Ideas
Why the world’s green tech revolution won’t happen without government subsidies – Dani Rodrik

Legalese
A judge’s advice for the lawyers in the FabFab trial: “Do not assume people know what an investment bank does” – DealBook
Is the FabFab trial “boring the crap” out of the jury? – Nick Summers

Housing
Housing aid programs have mostly overlooked subprime borrowers with good credit – Bloomberg

Old Normal
Real wages are still below 2009 levels – WSJ
“There is an obsession, bordering on pathology, with keeping wages as low as humanly possible” – Daniel Gross

Regulations
Elizabeth Warren 1, CNBC 0 – TPM

You Decide
“Transient Global Amnesia”: Rare mental disorder or Davos Panel? – AP

Right On
“A world without mosquitoes would be ‘more secure for us’” – Scientific American

Awesome
It’s like Instagram, but for Kuwaiti livestock – Atlantic Wire

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