US banks make huge profits

**Gideon Long** (0:02)
Big banks, big profits.

**Annette Admati** (0:04)
Record revenue across each business line.

**Gideon Long** (0:07)
That's JP, Bank of America, out of the gate just a moment ago.

**Annette Admati** (0:11)
The stock is high by a third of 1%. Another big...

**Gideon Long** (0:14)
It's World Business Report from the BBC World Service.
I'm Gideon Long, and we're looking at the handsome profits posted by five big US banks today. We'll also look at potential threats to wheat exports from both Russia and the United States, and why is American beef so pricey at the moment?
A cluster of American banks have published their earnings today for the second quarter of the year, and they have been blisteringly good. Goldman Sachs profits up 84% year on year. JP Morgan Chase, its best ever second quarter profit. Bank of America's trading revenue up by more than a third. Citigroup, its highest quarterly revenue in a decade. And Wells Fargo also beat Wall Street estimates. I asked the BBC's North America business correspondent, Michelle Fleury, to explain the figures.

**Michelle Fleury** (1:07)
I'm going to quote JP Morgan's CEO, Jamie Dimon, who said that it's pretty much as close to as good as it gets in terms of the current environment for banks. And specifically, if you look at all the uncertainty in the financial markets right now that have sort of sent stock market up and down, a lot of that has to do with the AI trade, whether it's up or down, or the price of oil. We're seeing tensions in the Middle East kind of lead to huge volatility. That creates opportunities for people to buy and sell stocks. And so unsurprisingly, trading profits have been up. Also deal making. Think back to that blockbuster SpaceX IPO, other deals like that, contributing fees to these big banks. All of that has helped kind of line their pockets in terms of profits.

**Gideon Long** (1:52)
I guess you might think that the war in the Middle East would have made things difficult for the economy generally, but I guess you can also see it the other way around, right? This is a trading opportunity because of the volatility caused by the war.

**Michelle Fleury** (2:01)
That's right. You have to separate out the impact of higher oil prices and supply chain disruptions and the impact that has on the economy and the volatility in the markets and that price fluctuation, which creates opportunities for traders to make a profit. And that's what we're seeing. The question going forward, of course, is what happens long term? Again, to quote Jamie Dimon, he talked about risks being like tectonic plates, that they could be manageable, these risks, geopolitical tensions, sticky inflation, the trade environment, or they could collide, and that could become a problem. And at the moment, it's unknowable. It's working in the bank's favour in terms of profits. But will it continue to do so in the long term, I think, is everyone's guess.

**Gideon Long** (2:46)
You mentioned that huge SpaceX IPO. Which were the banks that benefited from that?

**Michelle Fleury** (2:51)
I mean, some of the kind of big names, all of the major underwriters, which was pretty much most of the firms on Wall Street, I have to say. There were very few that weren't involved in some way or another in the deal. And so that's why things like that have a big impact. The other thing, of course, remember Google trying to raise money. They did a sort of, you know, offering, selling more shares, raising capital from the markets. That also involved more fees. So just in general, that kind of deal making environment really supported profits.

**Gideon Long** (3:20)
Michelle Fleury, well, is it healthy for our banks to be making so much money? Annette Admaty is Professor of Finance and Economics at Stanford Graduate School of Business in California and co-author of The Banker's New Clothes, An Examination of the Banking System. Annette, welcome to the programme. So great for shareholders, obviously, but is it good for the broader US economy? Is it good for the rest of us?

**Annette Admati** (3:43)
Well, not necessarily. Clearly. I mean, I just remind people that 2006 was a really awesome year in banking. 2006
And we know what happened not too long after that. By 2007, there was all kinds of tectonic waves coming on to the system for mortgage in that case. And you see, she took the words out of a quote from Jamie Dimon about tectonic plates.
And the CFO of JP Morgan Chase said, it would be naïve not to be worried. And the CEO of Wells Fargo said, we know such things don't last forever, et cetera, but it's good times. So basically, good times for banking do not mean things are well.