BUMPER THIRD-QUARTER profits at Goldman Sachs and another loss for Citigroup yesterday highlighted the gap between the resilience of Wall Street and the woes of Main Street, fresh evidence that two Americas are emerging from the crisis.
The diverging performance of investment banks such as Goldman and the retail operations of banks such as Citi is problematic for an administration that wants a strong Wall Street but is also under pressure to tackle the plight of ordinary people.
“When you have unemployment creeping towards 10 per cent and a sluggish economy, stories of huge profits and huge bonuses...could create difficulties if [the president] needs any more stimulus,” said Norman Ornstein, political analyst at the American Enterprise Institute.
Goldman announced near-record earnings of $3.2 billion, boosted by surging profits in bond and currency trading – activities that have become more profitable after the crisis reduced competition and governments injected emergency funds into the banking system.
Goldman’s profit, nearly four times higher than in the third quarter of 2008, underscores its status as one of the winners from a crisis that eliminated two rivals – Lehman Brothers and Bear Stearns – and hobbled others such as Citi, Merrill Lynch and UBS.
Citi, by contrast, suffered its seventh loss in eight quarters.
“US consumer credit remains the number one issue affecting our near-term results,” said Vikram Pandit, Citi’s chief executive, after announcing the bank had suffered credit losses of $8 billion in the three months to September, largely in its consumer business.
Citi, which has been bailed out with $45 billion of US taxpayers’ money, has suffered a total of more than $42 billion in credit losses since the beginning of 2008.
Citi’s investment bank, which includes Salomon Brothers, a once-feared Wall Street powerhouse – underperformed its rivals, helping to push the group into a loss of $0.27 per share. That loss raises questions over whether the government, which owns a 34 per cent stake in Citi, will allow the bank to repay the aid in the short term.
Mr Pandit said Citi had begun to see some signs of stabilisation in its cards and mortgage portfolios. But he warned it was too early to call an end to the consumer downturn.
The contrasting fortunes of the banks suggest Wall Street is recovering much faster than the rest of the US economy.
Economists warn that, with unemployment rising, losses in credit cards and mortgages will remain high into 2010. – (Copyright The Financial Times Limited 2009)
