Goldman Sachs and Citigroup closed earnings season on a good note today, as major US banks saw profits boosted by the election victory of Donald Trump, who promised to dismantle financial regulations.
Goldman announced 2016 net profit for shareholders of USD 7.1 billion, including USD 2.15 billion in the fourth quarter, while Citigroup saw a profit of USD 14.9 billion for the year, with USD3.57 billion for the final three months.
Like the other four big Wall Street banks, Goldman Sachs and Citigroup benefited from the euphoria of financial markets in the wake of the US presidential election.
Global stock markets and Wall Street have hit repeated records since November on hopes Trump, who takes office Friday, will ease regulations that will promote risk-taking.
The banking sector was particularly buoyant. The KBW stock index, which brings together banking stocks in New York, rose more than 20 per cent in this short period.
Goldman Sachs, whose traditional strength is its trading activities, saw revenue generated by this business line jump by 25 per cent in the fourth quarter.
Likewise, Citigroup saw revenue generated by its financial product trading jump 24 percent in the fourth quarter, driven by bonds, currencies, commodities, whose revenues were up 36 percent.
"Obviously, trading was much stronger than we have originally envisioned, which is unusual," Citigroup chief financial officer John Gerspach said in a conference call with reporters today.
"The environment remains good" as clients are reacting "to tax code and pro growth policies."
Trump has pledged to lower corporate taxes, and review the Dodd-Frank financial regulations, which limited speculation to avoid a repeat of the 2008 financial crisis. The appointment of several Goldman Sachs alumni to the Trump team seems to confirm reforms are on the way.
Gary Cohn, former number two at the bank, will be one of the chief economic advisors of the new president, and Steven Mnuchin is the pick for treasury secretary.
Jay Clayton, a lawyer by training, was named to head the Securities and Exchange Commission (SEC). He is married to a Goldman Sachs employee and has defended the bank in numerous disputes.
The rise in US interest rates in December after many years near zero also favors the large banks, which not only can pass it on to consumers but also see profits from the brokerage side.
"After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved," Goldman chairman and CEO Lloyd Blankfein said in a statement.
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