BIG BANKS SHOW CHASM BETWEEN MAIN STREET AND WALL STREET
The stark divide between Main Street and Wall Street is on display in the shifting fortunes of America's big banks. Goldman Sachs and Morgan Stanley are minting money despite the turmoil in the real economy. These Wall Street-focused banks reported blockbuster second-quarter results by capitalizing on sizzling markets and bustling trading activity, Matt Egan of CNN Business wrote late on Friday, July 17, 2020.
But banks that rely on Main Street for a large chunk of their profits took a hit. JPMorgan Chase, Bank of America and Citigroup all reported sharp declines in profits as they brace for a wave of defaults by setting aside tens of billions of dollars. Wells Fargo, still reeling from years of scandal, suffered its first loss since the 2008 financial crisis and set in motion a deep dividend cut.
This gap in the banking industry reflects the bifurcated rebound in the United States from the pandemic. The stock market has largely recovered from the crisis and companies are raising record sums of money in capital markets. But the real economy is still in crisis. Millions of Americans are out of work, countless small businesses are on the verge of collapse and corporate bankruptcies are mounting.
“Time is the killer in this. The longer this pandemic goes on, the worse it gets," said Chris Marinac, a banking analyst and director of research at Janney Montgomery Scott. Big banks are planning for the worst by ramping up cushions against bad loans. JPMorgan (JPM), Bank of America, Wells Fargo, Citi (C), PNC and US Bancorp (USB) set aside a combined $31.1 billion in additional loan-loss reserves during the second quarter. Although prudent, those moves sharply dented profits and reflect a sense that more trouble in the real economy is coming.