Wall Street Is Making the Most Money Ever. So Why the Long Face?

(Bloomberg) -- A jazz duo played inside a Manhattan apartment this week while Wall Street veteran Erika Karp mingled with other finance types. The big banks are finishing what’s on track to be the most profitable year ever, but the mood at the holiday party was restrained. Sometimes it dipped into sarcasm and disgust.

No matter what happens as December drags to a close, JPMorgan Chase & Co., Goldman Sachs Group Inc. and the other four U.S. heavyweights made so much money in the first three quarters that they’ve already topped last year’s total haul. Boosted by Donald Trump’s tax cuts, they’re heading toward their first $100 billion year ever, smashing the $93 billion record from 2016. But jubilation is hard to find.

Holiday spirits across Wall Street are being spoiled by anxiety that markets are getting uglier, frustration over the industry’s own miserable stock prices and fears that a recession will finally hit. Another explanation for the tempered mood: Bankers are savvy enough not to flaunt record-setting profits a mere decade after taxpayers bailed them out during the financial crisis.

“Some it of it is real, some of it is strategic,” Karp, who started the advisory firm Cornerstone Capital Group after spending decades at global banks, said about Wall Street’s self-deprecation. There’s genuine nervousness and fear, she said, but there’s also a widespread reluctance to “show how amazingly well you’re doing when people are starving and dying.”

JPMorgan, Morgan Stanley and Bank of America Corp. will each hit profit records this year, according to estimates compiled by Bloomberg. Goldman, Citigroup Inc. and Wells Fargo & Co. are on track to make the most since at least 2015. It all adds up to more than the banks made in their bubbly peak before the crash, even if you add in the profits of rivals they later swallowed up -- Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia and Countrywide.

“Wages are barely budging, but Wall Street is rolling around in record profits,” Senator Elizabeth Warren, a Democrat from Massachusetts who’s a possible contender for the 2020 presidential race, said in an email.

The scale of earnings could make it harder for the industry to spread the message that its wild days are long gone. This year’s Bank of America shareholders meeting opened with a humble mantra about risk: “We’re not going to do anything crazy to the customer,” video screens told investors, “and we’re not going to do anything crazy for the customer.”

There are some real reasons for bankers to worry. Analysts are downgrading their stocks and lowering earnings forecasts, warning that they might not bounce back next year. Goldman is caught up in its worst scandal in a generation, thanks to its role in a criminal deal in Malaysia. Probes into Wells Fargo’s consumer abuses aren’t over, and the bank will be under even more scrutiny once Democrats take over the House. The jolt that Trump’s tax cuts gave to big banks and their corporate peers is fading already. And the KBW Bank Index is down almost 20 percent in 2018.

But Wall Street also has a history of deflecting attention away from high profits with passionate complaints. In 2012, when the industry was thriving despite JPMorgan’s London Whale fiasco, executives grumbled that their work was less fun, rules were too strict and bonuses were shrinking.

They don’t have much cause to grumble about those things this time around. Stock traders, money managers and commercial bankers are poised for fatter year-end bonuses, according to Johnson Associates Inc. Trump has surrounded himself with Wall Street alumni, installed friendlier regulators, defanged the Consumer Financial Protection Bureau and signed a big rollback of bank rules after years of industry lobbying.

Flaunting Wall Street wealth is out of vogue right now, Karp said.

“You have to make it look like you’re totally engaged,” she said. “As if you actually give a damn about what’s going on in the rest of the world.”

--With assistance from Michael J. Moore.

To contact the reporters on this story: Max Abelson in New York at mabelson@bloomberg.net;Hannah Levitt in New York at hlevitt@bloomberg.net

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Daniel Taub, David Scheer

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