Goldman Sachs, Citigroup earnings confirm Trump effect on banks

Citigroup saw revenue generated by its financial product trading jump 24 per cent in the fourth quarter, driven by bonds, currencies, commodities, whose revenues were up 36 per cent. (AFP/DON EMMERT)

Goldman announced 2016 net profit for shareholders of US$7.1 billion, including US$2.15 billion in the fourth quarter, while Citigroup saw a profit of US$14.9 billion for the year, with US$3.57 billion for the final three months.

Like the other four big Wall Street banks, Goldman Sachs and Citigroup benefited from the euphoria of financial markets in the wake of the US presidential election.

Global stock markets and Wall Street have hit repeated records since November on hopes Trump, who takes office on Friday, will ease regulations that will promote risk-taking.

The banking sector was particularly buoyant. The KBW stock index, which brings together banking stocks in New York, rose more than 20 per cent in this short period.

Goldman Sachs, whose traditional strength is its trading activities, saw revenue generated by this business line jump by 25 per cent in the fourth quarter.

Likewise, Citigroup saw revenue generated by its financial product trading jump 24 per cent in the fourth quarter, driven by bonds, currencies, commodities, whose revenues were up 36 per cent.

"Obviously, trading was much stronger than we have originally envisioned, which is unusual," Citigroup chief financial officer John Gerspach said in a conference call with reporters on Wednesday. "The environment remains good" as clients are reacting "to tax code and pro growth policies."

GOLDMAN SACHS ON TRUMP TEAM

Trump has pledged to lower corporate taxes, and review the Dodd-Frank financial regulations, which limited speculation to avoid a repeat of the 2008 financial crisis. The appointment of several Goldman Sachs alumni to the Trump team seems to confirm reforms are on the way.

Gary Cohn, former number two at the bank, will be one of the chief economic advisors of the new president, and Steven Mnuchin is the pick for treasury secretary.

Jay Clayton, a lawyer by training, was named to head the Securities and Exchange Commission (SEC). He is married to a Goldman Sachs employee and has defended the bank in numerous disputes.

The rise in US interest rates in December after many years near zero also favours the large banks, which not only can pass it on to consumers but also see profits from the brokerage side.

"After a challenging first half, the firm performed well for the remainder of the year as the operating environment improved," Goldman chairman and CEO Lloyd Blankfein said in a statement.

However, there are some clouds on the horizon due to Trump's many protectionist statements. Analysts fear that a trade war with China would close this attractive market to Wall Street firms, whose clients are multinationals and governments doing business across the globe.

"There are still a lot of uncertainties, let's wait and see," Citigroup's Gerspach said.

The big US banks also are going to have to deal with a general public wary of the presence of many bankers and traders in the incoming Trump administration.

Demonstrations already have been held in front of Goldman Sachs headquarters in New York. About 40 protesters at a rally on Tuesday denounced "Government Sachs," and noted that Trump castigated Wall Street greed during the campaign.