The Finance 202: Goldman Sachs profits surge as Main Street struggles, complicating Trump's pitch

Four years ago, a two-minute ad summed up his populist pitch. Over a series of images of Wall Street — and then-Goldman Sachs CEO Lloyd Blankfein — Trump blasted a “global power structure” that “robbed our working class” and “put that money into the pockets of a handful of large corporations and political entities.”

Fast forward, and Goldman Sachs is enjoying the best of times. The Wall Street giant reported Wednesday its third-quarter profit doubled over the same period last year — to $3.62 billion — as its rivals also continued raking in profits. The result comes amid an ongoing economic crisis that has doubled the unemployment rate and left the most vulnerable facing rising food insecurity, evictions and other hardships as Washington negotiators all but fold on efforts to extend emergency relief.

The split picture provides another potential challenge to Trump as he fights to close a widening polling gap with Democratic nominee Joe Biden in the final weeks of the campaign. 

Polls show the economy remains a lone bright spot for Trump. Yet the candidate who ran less as a Republican four years ago than as an outsider tilting against a corrupt establishment is long gone. In his place is an incumbent defending a recovery that has delivered for the well-heeled while stranding millions of the down and out.

“If the left gains power, the recovery will be terminated, and the economy will be destroyed,” Trump said Wednesday in a virtual address to six economic clubs in cities across the country. On his Twitter feed in recent days, he has focused on the rebound in stocks, whose ownership is increasingly concentrated among the wealthiest.

Trump has frequently let the stock market guide his decision-making. And his economic team at times has prioritized the interests of investors.

The latest example of that broke Wednesday night. Back on Feb. 24, as top White House officials broadcast calm in the face of the encroaching pandemic, senior economic hands told a closed-door meeting of Hoover Institution board members the threat was indeed serious, the New York Times’s Mark Mazetti and Kate Kelly report. And the following day, National Economic Council Director Larry Kudlow gave the group a more nuanced assessment than the one he offered hours earlier on CNBC.

A hedge fund consultant in attendance captured the private warnings in a memo that quickly circulated on Wall Street, prompting a stock sell-off, the Times reports.

Goldman stands as a powerful totem of the K-shaped recovery. 

This year, the entire banking sector has enjoyed a major lift from $454 billion the Federal Reserve used to backstop markets and ease borrowing to the biggest companies. 

Their securities-trading desks have, remotely, hummed back to life. Big corporate bankruptcies have leveled off. Depositors haven’t pulled their money,” the Wall Street Journal’s Lizz Hoffman writes. “The emergency loans they made to big companies in the spring have largely been paid back, thanks to appetite from bond investors and support from the Federal Reserve. And they have added only modestly to their reserves for expected loan losses since June.”

But Goldman in particular was “incredibly strong in the quarter and have performed very well this year, much better than people would have expected given the uncertainty of the pandemic,” JMP Securities analyst Devin Ryan tells me.

“They have very limited exposure to lower interest rates because they have a small lending portfolio,” Seaport Global senior analyst Jim Mitchell adds, noting the firm’s trading operation has benefited from a spike in volatility.

Goldman spokesman Andrew Williams writes in an email that “in the wake of the pandemic, investors from pension funds to families have reassessed how they allocate their savings as their view of the future changes. That shifting landscape translates directly into higher levels of activity for firms like ours that stand between savers and borrowers. And we have also been very busy helping companies raise money so that they can keep their businesses running until more normal levels of activity return.”

Goldman’s profits have oscillated over the last four years. And its stock has lagged the broader market. But in Washington, it has seen its alums populate the top ranks of the president’s economic team.

After blasting Hillary Clinton during the 2016 campaign as being under the “total control” of the bank, Trump tapped former Goldman partner Steven Mnuchin as his Treasury secretary and Goldman president Gary Cohn as his first NEC director, among others. Dina Powell McCormick completed a round trip, leaving a gig heading Goldman’s foundation to join the Trump administration as an economic and national security adviser before rejoining the firm.

Dennis Kelleher, president of Better Markets, which advocates stricter financial regulation, says after running as “the most anti-Wall Street candidate since FDR in the 1930s,” Trump “merged the White House with Wall Street … adopting Wall Street’s agenda as his priorities that his financial regulators have spent years enacting.”

The big banks have scored some policy victories. 

Chief among them was Trump’s signature tax cut. Savings for the top six U.S. banks from the corporate rate cut “accelerated last year, now topping $32 billion as the lenders curbed new borrowing, pared jobs and ramped up payouts to shareholders,” Bloomberg reported in January. The outlet found those banks’ average effective rate dropped from 30 percent to 18 percent.

At the beginning of the year, Trump singled out a JPMorgan executive during a White House reception and asked for a thank you for its robust 2019 earnings. “I made a lot of bankers look very good,” he said.

On Wednesday, as Goldman announced its third-quarter results, two of its highest-profile alums tweeted calls for Washington negotiators to come together now to bail out the broader economy.

From Cohn:

From Blankfein:

Latest on the federal pandemic response

Mnuchin says relief deal is unlikely before election.

The Treasury secretary acknowledges the reality many already saw, but he will continue talks: “‘I’d say at this point getting something done before the election and executing on that would be difficult, just given where we are,’ Mnuchin said during an event hosted by the Milken Institute’s Global Conference,” Erica Werner and Jeff Stein report.

“Asked whether Democrats are unwilling to make a deal because they don’t want to give Trump a win three weeks before the election, Mnuchin replied: ‘I think that definitely is part of the reality. That’s definitely an issue …’ Mnuchin made his comments after an hour-long conversation he had earlier Wednesday with House Speaker Nancy Pelosi.”

  • Where Pelosi stands: “It’s like you’re bleeding and they keep putting band-aids on it. But they’re not addressing the problem,” Pelosi told House Democratic leaders in a meeting Wednesday, referring to the administration’s refusal to embrace a national strategic testing plan.
  • Trump also blamed Democrats: In his speech to the economic clubs, “he said that concern about the rising national debt is ‘very much on my mind’ but that the issue would be taken care of because of faster economic growth, a claim that economists from both parties have questioned.”

Wells Fargo fires more than 100 workers over abuse of pandemic loans: “The firm determined that the staffers defrauded the Small Business Administration ‘by making false representations in applying for coronavirus relief funds for themselves,’ … The review focused on employees who tapped the Economic Injury Disaster Loan program, a key part of the government’s effort to prop up businesses during the pandemic,” Bloomberg News’s Hannah Levitt reports.

“While it’s possible for employees at large companies to legitimately tap U.S. aid for businesses they operate on the side, Wells Fargo’s findings add to evidence the program was widely abused — with little sign such activity was limited to bankers.” 

Market movers

Stocks continued to sink after Mnuchin’s admission.

This marks the second day that traders sent shares lower on stimulus news: “The Dow Jones industrial average closed down nearly 166 points, or almost 0.6 percent. The S&P 500 index closed down 23 points, or nearly 0.7 percent, while the tech-heavy Nasdaq composite closed down 95 points, or 0.8 percent,” Hannah Denham reports.

  • How the biggest names fared: “Shares of Amazon slid more than 2 percent to lead most Big Tech lower. Facebook and Netflix were down 1.6 percent and 2.3 percent, respectively and Microsoft slid 0.9 percent,” per CNBC. (Amazon CEO Jeff Bezos owns The Washington Post.)

Coronavirus fallout

From the U.S.:
  • Fauci warns Americans to be careful about Thanksgiving: “That is unfortunately a risk, when you have people coming from out of town, gathering together in an indoor setting,” Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases, told ‘CBS Evening News.’ Fauci noted that people need to be especially cautious if members of their family are at risk due to age or underlying health conditions,” Antonia Farzan reports.
  • Young, healthy people may not get vaccine until 2022: “Many people are under the misconception that they’ll be able to get a vaccine in early 2021 ‘and then things will be back to normal,’ Soumya Swaminathan, the World Health Organization’s chief scientist said … In reality, she said, any vaccine that is ready next year will be available in limited quantities, with health-care workers and others on the front line having first priority, ‘and then the elderly and so on,’” per Farzan.
  • Overdoses rose in the first three months of the year: “Preliminary numbers released Wednesday showed fatalities increasing by approximately 10 percent from January through March of 2020, the most recent period for which data is available. During those three months, 19,416 people died of overdoses — nearly 3,000 more than did in the same period last year,” Farzan reports.
From the corporate front:
  • United Airlines posts $1.8 billion net loss: “Revenue in the period dropped 78 percent to $2.49 billion from $11.38 billion in the third quarter of 2019, roughly in line with Wall Street expectations, after the airline cut capacity 70 percent from last year,” CNBC’s Leslie Josephs reports. The airline did “cut its daily cash burn in the quarter to $25 million a day, including debt and severance payments, down from an average of $40 million a day in the previous quarter.”
  • Some airlines are offering covid-19 testing for a fee: “The handful of U.S.-based airlines offering tests are doing so via mail-in kits or offering rapid testing at select airports, with the option typically only available for certain flights,” Shannon McMahon reports. United and American are among the carriers offering limited testing, including for flights to Hawaii.
  • Disney made a big bet on streaming this week: “But experts and insiders remain divided on how much will really shift in the new structure. At heart is a question of how much a legacy company like Disney can — or even should want to — fully pivot away from its profitable legacy businesses,” Steven Zeitchik reports on the entertainment giant’s reorganization around Disney Plus.
  • Macy’s names new CFO: “The New York-based retailer named Adrian Mitchell as chief financial officer, effective Nov. 2 … For Macy’s, which also owns the Bloomingdale’s and Bluemercury brands, the appointment comes in midst of a multiyear turnaround effort that began long before the pandemic,” the WSJ’s Nina Trentmann reports.
Around the world:
  • G20 pledges to do “whatever it takes” to support global economy: “In a lengthy communique, G20 finance ministers and central bank governors also agreed in principle for the first time on a ‘Common Framework’ to deal on a case-by-case basis with the rising number of low-income countries facing debt distress,” Reuters’s Jan Strupczewski, Christian Kraemer and Andrea Shalal report.
  • A second wave is breaking over Europe. “Multiple European countries set records Thursday for the number of new coronavirus cases reported in a single day as the continent continued to grapple with a resurgence in infections,” Antonia Farzan reports.
  • French president announces curfew for Paris: “The curfew will require people to stay home between 9 p.m. and 6 a.m., Emmanuel Macron said. It will begin Saturday and last for at least four weeks,” James McAuley reports.

Pocket change

Wells Fargo’s scandal continues to haunt the bank.

Losses have remained a constant for the company: “Wells’s profit plunged 57 percent in the third quarter, missing Wall Street’s expectations as persistent costs tied to its years-old sales practices scandal …,” Reuters’s Imani Moise and Noor Zainab Hussain report.

“The San Francisco-based bank, which has been in regulators’ penalty box since 2016, spent $961 million on customer remediation accruals in the quarter, indicating that the bank was still feeling the burn from its sales practice scandal has already cost it billions. Bank executives have signaled repeatedly that the worst of the fallout is in the past, but elevated operating losses have remained constant. Wells Fargo has reported large litigation or remediation charges in 7 of the last 11 quarters, according to filings.”

Starbucks ties executive pay to diversity targets: “The coffee chain said that it would aim for at least 30 percent of its U.S. corporate employees—and 40 percent of its U.S. retail and manufacturing employees—to be people of color by 2025. Starbucks said its metric included Black people, other people of color and indigenous people,” the WSJ’s Heather Haddon reports.

“Company figures show it currently falls short of those goals at nine of the 14 job levels it said it would track. The company has roughly 200,000 U.S. employees and nearly 8,900 company-owned stores in the U.S.”

Meat giant JBS’s owner settles U.S. corruption charges: “Brazil’s J&F Investimentos, which controls the world’s largest meatpacker, JBS SA, put an end to a long-running legal dispute in the U.S. over bribes it paid in Brazil, agreeing … to pay $128 million to settle the case,” the WSJ’s Luciana Magalhaes, Samantha Pearson and Jacob Bunge report.

“J&F admitted in 2017 to paying about $150 million in bribes to Brazilian politicians to secure cheap government funding to fuel one of the most ambitious global acquisition sprees in Brazilian corporate history.”

Campaign 2020

Biden smashes another previous fundraising record.

The former vice president says he and the Democratic National Committee raised $383 million in September: “The amount raised in one month beat the Democrats’ record-shattering haul in August of $364.5 million,” Colby Itkowitz reports.

“Biden’s campaign manager, Jen O’Malley Dillon, tweeted that $203 million of September’s money came from online donors. Going into the last month of campaigning, the Biden campaign has $432 million on hand, she said.”

  • Behind Biden’s fundraising juggernaut: “The unlikely transformation of Biden, a 77-year-old whose seemingly limited appeal to small donors left him financially outflanked in the primaries, into perhaps the greatest magnet for online money in American political history is a testament to the ferocity of Democratic opposition to Trump,” the Times’s Shane Goldmacher and Rachel Shorey report. “In a little over a year, the former vice president’s online fund-raising had increased 1,000-fold, to $24.1 million on Sept. 30.”

Biden says he spoke with Warren Buffett: “Biden told contributors that he and Buffett spoke on America’s opportunity ‘to lead the whole damn world in a way that no one else can,’ according to a press pool report. Biden told attendees that he was on the phone with Buffett just before the virtual gathering,” CNBC’s Brian Schwartz reports.

“The campaign said the hosts were mainly Wall Street executives, including Blair Effron, a partner at Centerview Partners; Deven Parekh, the managing director of Insight Partners’ and Roger Altman, the founder and senior chairman of Evercore. There were 37 attendees present.” Buffett previously told CNBC that he was backing former New York Mayor Mike Bloomberg during the primary.

When superpowers collide

Trump administration to consider adding Ant Group to the blacklist.

The fights over TikTok and Huawei look to be just the beginning: “The move comes as China hardliners in the Trump administration are seeking to send a message to deter U.S. investors from taking part in the initial public offering for Ant. The dual listing in Shanghai and Hong Kong could be worth up to a record $35 billion,” Reuters’s Humeyra Pamuk, Alexandra Alper, Karen Freifeld, David Shepardson report.

“While curbing access to U.S. technology deals a blow to companies like Chinese telecoms giant Huawei Technologies, which was added in May 2019, its impact on a fintech giant like Ant, an affiliate of Alibaba, is likely to be more symbolic and does not prevent U.S. investors from taking stakes in the firm.”

Chart topper

Daybook

  • The Labor Department reports weekly jobless claims
  • United Airlines, Morgan Stanley, Walgreens Boots are among the notable companies reporting their earnings

The funnies

Bull session

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