Goldman Sachs and JP Morgan have reported bumper profits for the second quarter as their investment banking divisions continued to ride the global boom in mergers and takeover deals.
The two US banks have been capitalising on the surge in merger and acquisitions activity, which broke records for the second straight quarter in the three months to June, according to Refinitiv data, and helped make up for a slowdown in trading since the start of the year.
Goldman Sachs, which continues to generate the highest investment banking fees among its peers, reported profits of $5.5bn (£4bn) in the second quarter. That was the second highest profit on record for the bank, only surpassed by its first quarter of 2021, and compared with just $373m in profits a year earlier when the group had to draw down provisions to cover a $2.9bn settlement over the 1MDB corruption scandal with global regulators.
Revenues were also the second highest on record, at $15.4bn, thanks to a strong performance from its investment banking division, with particular strength from its financial advisory, equity underwriting and debt underwriting operations.
“Our second-quarter performance and record revenues for the first half of the year demonstrate the strength of our client franchise and our continued progress on our strategic priorities”, Goldman’s chairman and chief executive, David Solomon, said. However, he cautioned that clients would still face challenges as the world started to recover from the pandemic.
Meanwhile, rival JP Morgan reported a 150% jump in profits thanks to improving economic forecasts that meant it could release roughly $3bn worth of reserves originally put aside to deal with potential defaults linked to the pandemic. That compared with the same period last year, when the bank put aside $8.9bn to deal with the potential fallout of the Covid crisis.
“This quarter we once again benefited from a significant reserve release as the environment continues to improve,” JP Morgan’s chief executive and chairman, Jamie Dimon, said. “Consumer and wholesale balance sheets remain exceptionally strong as the economic outlook continues to improve.”
It helped profits at JP Morgan rise to $12bn for the three months to the end of June, up from $4.7bn a year earlier. And while revenues fell 7% to $31.4bn, the banking group still benefited from strong dealmaking, with investment banking revenues rising 37% year-on-year.
Goldman Sachs released a much smaller portion of its reserves, totalling just $92m, saying that stronger economic forecasts were partly offset by provisions it had to put aside to cover its growing loan book, primarily for credit cards. The bank put aside $1.6bn to cover the risk of Covid defaults in the second quarter last year.
JP Morgan also released a memo to UK staff on Tuesday, announcing a gradual return to the office for local staff from Monday, when most Covid restrictions are due to be lifted.
The bank said it would continue to cap office capacity at 50%, requiring staff to rotate between home and office, before lifting those restrictions “in the coming weeks and months”. Staff will also be required to wear masks in common areas, and do a daily health check-in on the company website before coming into the office. Workers will also continue to have access to free PCR tests provided by the bank.