Interesting article in the NYT discussing how government’s effort to stop the financial system’s collapse set the stage for a rapid concentration of power for two US financial giants, Goldman Sachs Group Inc. (GS) & JP Morgan Chase & Co. (JPM).
A new order is emerging on Wall Street after the worst crisis since the Great Depression — one in which just a couple of victors are starting to tower over the handful of financial titans that used to dominate the industry.
On Thursday, JPMorgan Chase became the latest big bank to announce stellar second-quarter earnings. Its $2.7 billion profit, after record gains for Goldman Sachs, underscores how the government’s effort to halt a collapse has also set the stage for a narrowing concentration of financial power.
Both banks now stand astride post-bailout Wall Street, having benefited from billions of dollars in taxpayer support and cheap government financing to climb over banks that continue to struggle. They are capitalizing on the turmoil in financial markets and their rivals’ weakness to pull in billions in trading profits.
For the most part, the worst of the financial crisis seems to be over. Yet other large banks, including Citigroup, Inc. (C) and Bank of America Corporation (BAC), are still struggling to return to health. Both are expected to report a more profitable quarter on Friday, but a spate of management changes and looming losses from credit cards and commercial real estate have thwarted a stronger recovery.
Other former Wall Street stars like Morgan Stanley (MS), which was hurt more by the crisis and has avoided taking big risks in the new era, may also rebound and begin to take on old rivals.
But for now, Goldman Sachs and JPMorgan are surging.