Market Extra: Wall Street profits soared in first half of 2020 amid the worst pandemic in a century, report says

Market Extra: Wall Street profits soared in first half of 2020 amid the worst pandemic in a century, report says

Wall Street profits surged in the first half of 2020, aided by a injection of federal fiscal stimulus intended to limit the economic damage from the COVID-19 pandemic, according to an annual report released Thursday by New York state Comptroller Thomas DiNapoli.


Financial institutions saw pretax profits hit $27.6 billion in the first half, a jump of 82% over the same period last year, the report shows, highlighting the disparities between Main Street and Wall Street, as the nation combats the viral epidemic that has spread to more than 40 million globally.



DiNapoli said that the success of the banking industry, part of a crucial source of tax revenue for the state, is helpful for city and state budgets but underscores the need to keep funds flowing to average Americans hard-hit by the global epidemic that has hobbled many parts of New York City, viewed by many as the heart of the financial world.


Indeed, the Wall Street Journal reported earlier this summer that New York City faces a $9 billion deficit over the next two years, high levels of unemployment and the prospect of thousands of layoffs if new revenue or savings aren’t found.


Wall St. provides an outsized contribution to state tax collections, accounting for 18% ($15.1 billion) of all tax collections in state fiscal year ending March 30, 2020.


“Wall Street’s successful first half helps our state and city budgets because the securities industry provides an outsized source of revenue, but the rising profits on Wall Street are disconnected from the pain being felt on Main Street,” DiNapoli said in a statement.


“Our economy, and Main Street’s businesses and workers, are badly in need of additional support, including action in Washington on a new round of stimulus and relief. Wall Street’s growth can only be sustained if there is broad economic recovery,” he said.


The first half profit gains in 2020 by the banking sector, traditionally measured by the profits from 120 member broker/dealers of the New York Stock Exchange, were nearly equal to the entirety of 2019’s profits of $28.1 billion, the comptroller’s report says.


The report comes after Goldman Sachs GS, +0.27% posted blockbuster results for the second straight quarter, with record earnings per share of $9.68 on Oct. 14, about double the consensus estimate, propped up primarily by trading and investment banking.


Although the economy in the U.S. appears to be showing some signs of improvement, renewed fears of a fresh resurgence of the deadly illness is restoking investor anxieties.

Already, the pandemic-driven social restrictions have put millions of Americans out of work and plunged the U.S. into a recession.


DiNapoli’s says that the banking sector and the broader financial system has received some $2.4 trillion in federal coronavirus relief funds, with more hoped for in the coming weeks and months.


The Federal Reserve has lowered its policy interest rate to a current range of 0% and 0.25% and injected trillions into the financial system, along with the government, which has served to aide the banking sector.


Against that backdrop, the contingent of financial institutions, including Goldman and peers JPMorgan Chase & Co. JPM, +1.27%, Citigroup C, +0.58%, Bank of America BAC, +1.22%, Wells Fargo & Co. WFC, +0.30%, delivered quarterly results that mostly beat analysts’ worst estimates in the face of the public health crisis.


Still, major money center banks have set aside billions for potential soured loans in case economic forecasts darken and have been more hesitant to lend in the face of the economic weakness.


DiNapoli notes that continued outperformance by banks isn’t guaranteed in the next half of the year, but banks are on track to surpass 2019’s result.


That said, the city is predicting a 34% downturn in bank bonuses. The comptroller will release a report on prospective bank bonuses for 2020 in March.