Wall Street’s major banks recorded an “earning surprise” as the U.S. economy emerged from the COVID-19 shock. In particular, as global companies have been listed in the U.S. stock market and the M&A fever has heated up this year, the fees collected through them are believed to have served as a “good son” that led to good performance.
According to the Wall Street Journal, JP Morgan Chase, the largest bank in the U.S., posted a net profit of $11.95 billion in the second quarter of this year. The figure is about 2.5 times higher than the previous year’s $4.69 billion. Although its sales during the same period decreased slightly from $30.48 billion (about $34.9 trillion), it is still above its market estimate of $29.98 billion.
Goldman Sachs, a global investment bank, also made an announcement on the same day that it made $5.49 billion (about 6.3 trillion won) in net profit and $15.39 billion in sales respectively in second quarter.
The reason why Wall Street’s major banks recorded “earning surprises” is due to the listing of IPO, SPAC, and M&A, which have been booming this year. The IPO market was unusually hot this year as liquidity became abundant in the stock market due to the U.S. government’s record-breaking monetary policy amid low interest rates. Goldman Sachs led more than 160 IPOs this year alone, surpassing the total number of IPOs last year.
The M&A market, which hit its highest level in 40 years in the first half of this year, also drove Wall Street’s major bank performance. JP Morgan and Goldman Sachs reportedly provided advice on the merger of AT&T’s Warner Media division and Discovery, one of the largest M&As in the second quarter of this year.
Goldman Sachs’ investment finance division was found to have collected $3.61 billion in fees, up 36% year-on-year in the second quarter, while JP Morgan earned $3.57 billion, up 25% from the same period.
According to financial information company Refinitive, Goldman Sachs made the most profits in M&A in the first half of this year. JP Morgan then came in second. In the case of global IPO, JP Morgan ranked first and Goldman Sachs ranked third.
Initially, major Wall Street banks increased their cash reserves to prepare for loan losses, including mortgage loans and defaults, as the U.S. economy recovered faster than expected, which also had a positive impact on their performance.