Citigroup reports today, followed this week by Bank of America, Goldman Sachs and Morgan Stanley. Photograph: Jin Lee/AP
Wall Street banks are this week expected to announce bumper profits, paving the way for huge bonuses to bankers, putting their staff in London back under scrutiny as the rest of the country braces for swingeing cuts in public spending.
Investment banks will disclose third-quarter results that will underline a healthy return to profitability since the banking meltdown of 2008.
Last week, JP Morgan kicked off the reporting season by revealing big increases in income and profits, as well as announcing it had set aside more than £4bn for pay and bonuses.
The bank earned £2.79bn for the quarter, compared with £2.27bn at the same time last year, though profits in the investment banking division fell. Chief executive Jamie Dimon said income had risen because the bank was setting aside less money to cover loan losses.
Citigroup, which is 10% owned by the US government, reports today, followed by Bank of America, Goldman Sachs and Morgan Stanley. Although profits will look healthy compared with two years ago, the trading performance in some divisions could disappoint, especially in equities where there has been a dearth of activity. Analysts add that some traders have been wrong-footed by volatility in currency and commodities markets.
But the banks will report lower impairment charges, reflecting a continuing decline in credit losses and bad debt. Credit Suisse will also report this week.
More than half of Britain’s bankers expect to see substantial rises in their bonus payouts this year, according to a survey by eFinancial careers, a recruitment website.
In the US, bankers’ pay is on track to break a record high for a second consecutive year, according to The Wall Street Journal. A WSJ study published last week said three dozen of the top publicly held securities and investment-services firms – which include banks, investment banks, hedge funds, money-management firms and securities exchanges – are set to pay $144bn in compensation and benefits this year, a 4% increase from the $139bn paid out in 2009. Revenue was expected to rise at 29 of the 35 firms surveyed, but at a slower pace than pay.
Banks are benefiting from low interest rates and strong international markets and are determined to base their pay on economic and market conditions rather than yield to pressure coming from regulators and politicians.
Last month, Goldman was forced to defend its decision to award about 80 of its senior bankers in London free shares worth millions of pounds. Goldman said the handouts were essential to prevent top dealmakers from defecting to rivals, following a tax on bonuses imposed by the former Labour government.
The bank argued it had capped compensation for its partners at £1m in 2009, but that competitors shelled out much larger payments. Several of its top executives left to take up positions with other banks.
Lord Oakeshott, the Lib Dem treasury spokesman, said: “The bonus merry-go-round never seems to stop at Goldman and is a sign of the bank making super-normal profits.”