Cash could be king during a crisis. But for the major investment banks that help the Federal Reserve do “whatever it takes” to maintain the flow of credit during the pandemic, the ace in the hole has been capital market commissions.
Drink JPMorgan, Chase & Co. JPM,
which posted a record $ 33.8 billion in revenue for Tuesday’s second quarter, despite the coronavirus recession, and a 54% increase in investment bank fees a year ago.
“Not to be a cheerleader, but 2Q20 showed there is a good reason JPM is considered the industry leader,” wrote a team led by Jesse Rosenthal, chief research officer for US financial companies at CreditSights, in a note after the bank’s results.
Citigroup Inc. C,
Also Tuesday reported $ 19.8 billion in second-quarter revenue, driven in part by a 68% increase in commercial fixed-income income and a 131% jump in investment-grade debt underwriting activity ago. one year.
“The Fed plays a big part in that, because they have really opened up the capital markets,” Stuart Plesser, a primary bank credit analyst at S&P Global Ratings, said in an interview Tuesday.
He pointed to recent bond issuance records set by high-investment-grade, high-yield companies in the United States during the pandemic, as examples of the ways in which several of the world’s largest investment banks have thrived as the Fed has offered more than $ 2 billion in emergency funds. and big corporations have rushed to build war chests this year.
“That generated huge fees,” Plesser said of investment banks, although he also expects capital market activity to return to more “normal” levels in the second half of the year.
Related: Wells Fargo blames COVID-19 and the Fed rules, but also himself for the disappointing results
This S&P chart shows capital markets revenue at the largest investment banks that already topped $ 40 billion in the first quarter, the highest level in five years.
Capital markets rates are key
The credit rating firm also charted how JPMorgan and Citigroup have led their peers in capital markets revenue in most years since 2010.
How the majors accumulate
The Federal Reserve has increased its balance sheet to more than $ 7 trillion from less than $ 4 trillion about a year ago, in an effort to offset the economic consequences of the United States during the pandemic.
Big banks started the corporate earnings season on Tuesday. The Dow Jones Industrial Average DJIA,
S&P 500 index SPX,
and Nasdaq Composite COMP,
The session ended considerably higher after Federal Reserve Governor Lael Brainard called for sustained large-scale asset purchases by the US central bank to help the economy recover amid a “thick fog of uncertainty “caused by COVID-19.
.
