Banks Can Make Money Heading Into Hard Times

A lot of investors are pretty nervous about the economy. You saw it with the knee-jerk reaction in JPMorgan’s stock after the bank reported results that missed Wall Street estimates. The bank also said it would suspend share buybacks as it seeks to build capital to meet regulatory requirements, and it started to set aside more money for souring loans.

Within a day, the mood shifted.

With Citigroup saying traders bought in hundreds of millions more than analysts expected, it proved that even a bank in the midst of a huge turnaround mint some money in hard times. The fixed income-unit posted a stunning 31% surge, compared with a 15% jump at the same business at JPMorgan.

The stock surged the most in more than two years and brought up most of the biggest financials with it.

Yes, the hard times are coming. Citigroup also said it would pause buybacks. But perhaps an economic downturn wouldn’t be too damaging.

“We might head into some form of recession and I, like many of others, have tried to handicap it,” Morgan Stanley Chief Executive Officer James Gorman said in a conference call with analysts. “We’re, frankly, guessing at this stage. But I think it’s unlikely to be a deep and dramatic recession, at least, in the US.”

Trading is volatile. And so is investment banking. And there’s a lot of debate around how much CEOs are willing to spend on those businesses heading into a potential recession. Even with layoffs starting or pending at some of the biggest banks in units such as mortgages, in some places headcount is stable -- or even rising.

Citigroup is “deadly serious” about dealmaking, CEO Jane Fraser told analysts, recognizing that it can take a few years to build share and see the fruits of such investments. “You’re going to see us take a strategic look at this and a long-term look, rather than just shooting from the hip.”

But there are a range of banks revisiting their plans. Some of the biggest investment banks are weighing whether they’re overstaffed, my Bloomberg colleagues broke today.

Talent Wars

There is still a hint that the talent war continues on some level. You see it in the musical chairs between the technology giants and financial firms. Days after Goldman Sachs said it hired the founder of a technology incubator that was born within Alphabet Inc.’s Google, a former Goldman star was reported to join Alphabet’s board.

Marty Chavez, now the vice chair and partner at Sixth Street Partners, is the first change to the technology firm’s board since Eric Schmidt departed in 2020.

Is it a sign of Alphabet seeking a bigger entrance into financial services? Is it a sign of something else entirely? Chavez is joining us in an exclusive interview for Bloomberg Television on Monday at 4:30 p.m. New York. Tune in -- and we can ask him.

Next week there’s another big week of bank earnings, with Goldman Sachs and Bank of America on Monday. I’ll be on air with my intrepid colleagues starting 5 a.m. to walk you through it. What’s more is that Bloomberg’s Crypto Summit is Tuesday, and I’ll be speaking with billionaire investor Mike Novogratz. Blackstone’s Jonathan Gray will be speaking with us for Bloomberg Television on Thursday after releasing results. He’s certain to cap off a huge week. Stick with us. And send all tips and opinions to [email protected].