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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Anyone who doubts that technology can give elderly companies a second crack at youth should look at Bank of America. The lender’s revenue increased 15 per cent in the latest quarter, year on year — the same rate analysts expect Microsoft to report to the market later this month. In fees and trading income alone BofA grew 22 per cent, faster than Google.
That’s no coincidence. The big banks reporting on Tuesday, which also include JPMorgan, Citigroup and Goldman Sachs, are riding high with Silicon Valley’s help. Tech companies are doing big deals, minting new millionaires and livening up markets. That creates opportunity, but also — as wobbles elsewhere in the market suggest — plenty of risk.
The dividend from an ebullient tech sector went first and foremost to banks’ equity traders. Revenue at the four firms increased $21bn from a year before, $9bn of it from facilitating stock trades. Goldman’s haul was a record, as was Bank of America’s. Index rebalancing, lurches in software stocks, Asian chip trades and feisty hedge funds all added fuel to the fire.
Then there is investment banking, which contributed $4bn of the foursome’s growth. SpaceX dominated, but dealmaking fees broadly are edging back to record levels from 2021. Income from offering M&A advice grew at all except the laggard of the group, Citi.
AI and tech are boosting other parts of the banks’ businesses, too. The so-called hyperscalers, such as Google and Amazon, are driving debt markets with huge bond issues; featherbedded tech employees and investors are helping to buoy wealth management franchises. Corporate lending is getting a fillip from investment in data centres and AI infrastructure.
The exact impact is hard to gauge, though. JPMorgan boss Jamie Dimon pointed out that capital expenditure on AI could hit $1tn next year, roughly a quarter of all capital spending, but noted that it’s hard to entangle exactly what’s AI and what isn’t. Apollo chief economist Torsten Sløk has called AI “the one thing holding up both the economy and markets”.
It’s troubling, then, that even as the banks did a victory lap, IT giant IBM said that some of its clients had been postponing software purchases to afford increasingly costly hardware such as servers, storage and memory. Its shares dropped by a quarter. That doesn’t mean appetite for AI is fading, but it is a useful reminder that company budgets are finite.
The banks themselves know this, of course. Dimon, classically cautious, has warned before that his bank is “over-earning”; on Tuesday, he reminded analysts that credit conditions wax and wane; his finance chief suggested some rivals are engaging in “relationship lending” to fund data centres — chasing future business at the expense of discipline.
Such sanity checks are timely. The big banks are trading at price-to-book values they haven’t seen since before 2008’s financial crisis. Much is different now, not least their formidable balance-sheet defences. But the tech boom is creating a new vulnerability. Wall Street is no longer the only industry with its tentacles jammed into every nook of the economy.
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