Counterparties: Like water for profit

January 16, 2013

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In the unlikely event that you were harboring deep anxiety about the profitability of Goldman Sachs or JP Morgan, you can skip the Xanax. At the big banks, profits are very much back.

The new Goldman Sachs, Stephen Gandel writes, looks “a little bit like the old Goldman Sachs”. Goldman today reported that its fourth quarter profit rose 53% and full year earnings jumped 70%. The bank also pulled $6 billion in revenue from its own investments for the year, or 17% of its overall revenue. Goldman even found time to placate the rival — and overlapping — factions of employees and shareholders by cutting the amount of revenue going to employees, reports Lauren LaCapra. At 38%, Goldman’s compensation ratio is second lowest since the bank went public. Still, in absolute dollars, bank employees got a bump: comp rose 6% over last year.

Things were even better at JP Morgan: the bank set fourth quarter and full year profit records, an increase of 54% over last last year’s fourth quarter and 12% over 2011’s full year results. Despite the break-out profits, CEO Jamie Dimon was forced to accept just a $10 million bonus in penance for the botched trades in the bank’s Chief Investment Office.

While Wells Fargo enjoys the fruits of the mortgage market, John Carney points out that Goldman and JP Morgan are doing much the same in the corporate bond market. Fixed income underwriting fees for the year  were up 25% at Goldman and 79% at JP Morgan. Corporate America is apparently following Lloyd Blankfein’s sage advice to borrow at low rates, he notes.

There was one year-end review that wasn’t as glowing: JP Morgan’s internal report on the dissecting of Bruno Iksil. As Felix notes, the report doesn’t tell us much about how the CIO office’s losses ballooned into the billions. Also troubling, says Matt Levine, is the fact that no senior manager was getting anything but heavily massaged data; even if that information was accurate, it wouldn’t necessarily help them understand the CIO’s dizzying synthetic credit positions. — Ben Walsh

On to today’s links:

New Normal
Nearly a third of working American families don’t earn enough to pay for necessities – WaPo

JPMorgan’s disastrous London Whale trade, an oral history – FT Alphaville

Facebook new mission: become a social “engine of discovery” – Wired

The US government is morphing into “the world’s largest insurance broker” – Nate Silver
If there’s gonna be a global currency war, here’s how it’ll go down – Euromoney

EU Mess
Germany is taking back $36 billion in gold from foreign vaults – Bloomberg
Germany’s gold move could be a purely domestic move — or it could be much worse – Mohamed El-Erian
Let’s not canonize Mario Draghi just yet – Economist

Did lack of Wonder Bread push bread prices up in December? – Heidi Moore

Some ads more native than some other ads – CJR
NYT reporter criticizes how much the kids spend; kids criticizes NYT reporters math – The Billfold

Goldman Sachs and Morgan Stanley chip into wrongful foreclosure settlement – AP

Your next Treasury Secretary owns low-cost index funds, which is comforting – Tim Fernholz

Insiders describe the costly foreclosure review process as a “facade” – Huffington Post

Bankers who need a $12 app to know if they got a crappy bonus shouldn’t be bankers – iTunes Store

Good Luck With That
Single men are moving to North Dakota in droves – NYT

BofA wants to use its famed sense of timing to re-enter the mortgage market – WSJ

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