Investment banking operations now hurting investment banks, while consumer facing banks are thriving off of higher interest rates
Investment banking operations now hurting investment banks, while consumer facing banks are thriving off of higher interest rates
Wall Street deal making was thriving in 2021 before interest rates went up. Companies were trying to go public due to lofty stock valuations which were driven by low interest rates.
Due to inflation, interest rates had to go up to tame inflation, and equity markets do not like higher interest rates. Stock markets have started to tumble, and that has hurt banks that have higher investment banking operations such as Morgan Stanley and Goldman Sachs.
Trading revenue was down for all investment banks. Citi, Morgan Stanley, JPMorgan, and Goldman all reported lower trading revenue which is another area investment banks tend to lean on for revenue.
Wells Fargo and JPMorgan on the other hand that have more consumer facing businesses have weathered the storm a bit better. Higher interest rates have led to those banks making more money on Net Interest Income (NII). That is banks can now loan money at higher interest rates thanks to the Federal Reserves tightening cycle.
JPMorgan CEO Jamie Dimon stated in his earnings call to analysts that consumers are spending their excess cash, and using credit cards. That credit card debt that isn’t paid in full, results in higher interest rates, leading to higher interest income.
