Shares of several major U.S. financial institutions fell on Friday along with the broader market a day after President Barack Obama’s proposals to further restrict banking activity.
Trading profits account for a significant portion of Wall Street’s recovery in 2009.
The most striking example is Goldman Sachs (NYSE:GS). On Thursday it reported net revenues of $45 billion for 2009 and $34 billion of it was from trading and investments. The $34 billion figure is almost four times its 2008 trading and investment profits.
Bank of America’s (NYSE:BAC) noninterest income rose to $13.5 billion, up $10.9 billion from the 2008 figure, the company said this week. It cited trading and equity investments as contributing factors. Sales and trading revenues for fixed income, currency, and commodities were $12.7 billion in 2009.
Morgan Stanley (NYSE:MS) also reported this week trading revenues of $7.4 billion, compared to $2.6 billion in 2008. JPMorgan’s (NYSE:JPM) “principal transactions” revenues, or trading revenues, swung from a $10.7 billion loss in 2008 to a $9.8 billion profit for 2009.
For Wells Fargo (NYSE:WFC), its net gains from trading activities were $2.67 billion in 2009, compared to $275 million in 2008. While it is marked improvement, trading activities at the bank account for a relatively small portion of the company’s revenues. Trading represented 6.3 percent ofWells Fargo’s total noninterest income.
Although not every bank heavily relies on trading to recovery financially, it is still a huge source of revenue for Wall Street.
When news of President Obama’s proposal to curb trading activities broke yesterday, the Dow lost 214 points, or 2 percent. The market continues to slip today, with the Dow trading down 0.60 percent in early afternoon trading. Among several big banks, Goldman Sachs is down 2.54 percent, Bank of America is down 2.94 percent, and JPMorgan down 1.63 percent. Wells Fargo is up 0.82 percent.
Obama’s proposal essentially separates commercial banking and principal trading and investments. The proposal, if enacted, would not allow banks to “own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit”.