Hundreds of thousands of small businesses are closing for good. Temporary layoffs at larger companies are becoming permanent. But the country’s largest banks, which together serve a majority of Americans through loans, credit cards or deposit services, are not raising an alarm.
In their third-quarter earnings reports this week, big banks have said they are generally prepared for a wave of loan defaults they expect in the second half of next year. And their own fortunes are just fine: A trading and investment banking bonanza on Wall Street is helping them stay profitable.
A few common themes have emerged from the reports.
Wall Street Is Booming
The pandemic has made for a turbulent year across a wide range of markets, but all the trading that investors have done in response has kept the revenue rolling into the banks.
Goldman Sachs reported strong markets revenue on Tuesday, helping it generate profits of $3.62 billion — far surpassing analyst expectations of $2 billion. Trading of bond products linked to interest rates, corporate credit, mortgages, and the prices of oil and other commodities lifted the bond division’s quarterly revenue 49 percent higher from the same period last year. In stocks, divisional gains were 10 percent.
In a call with analysts, Goldman executives said some of the boom had come because the firm increased its share of trading activity on behalf of the market’s 1,000 biggest money managers and other active traders who give business to Wall Street.
Goldman’s asset-management operations benefited from a rally in stock prices as well. A rise in the value of its positions in companies like the online commerce platform BigCommerce (up more than 40 percent since its shares began trading in August) and the medical equipment maker Avantor (up nearly 30 percent this year) helped the division generate 71 percent more revenue.
But it was not just Goldman that benefited. Bank of America’s investment banking business had the second-best performance in its history in the third quarter, trailing only this year’s second quarter, according to the bank’s chief financial officer. At JPMorgan Chase, trading revenue rose 21 percent and investment banking revenue 52 percent from a year earlier.
Customers Are Hanging On
Steeling themselves for widespread defaults by customers unable to pay credit-card, home-loan or other debts because of the pandemic, the biggest banks have sent vast sums of cash into special pools they will draw from to cover losses in the future. But in general, the banks say, their customers are doing better than they expected.
The reason? Bank officials pointed to the trillions of dollars the federal government has distributed in the form of enhanced unemployment benefits, forgivable small-business loans and other programs created this spring by the CARES Act.
“Recent economic data has been more constructive than we would have expected earlier this year,” JPMorgan’s chief financial officer, Jennifer Piepszak, said on a call with journalists on Tuesday. “Over all, consumer customers are holding up well. They have built savings relative to pre-Covid levels and, at the same time, lower debt balances.”
This quarter, the banks each set aside less money than in previous quarters to prepare for losses. Bank of America and JPMorgan Chase said their credit-card customers were making their payments again.
The bank with the most strained customers seems to be Wells Fargo, which said it had spent nearly $1 billion trying to help customers who were struggling to repay their loans come up with new payment plans to keep them from defaulting. Even so, the bank said, its borrowers are less likely to fall behind now than they were earlier this year.
More Stimulus? Don’t Count on It
While government relief programs have prevented serious problems so far in the financial sector, none of the banks are banking on more stimulus.
In their economic forecasting, each bank takes a range of possible outcomes into account, from better than expected to doomsday. On Wednesday, Bank of America’s chief financial officer, Paul Donofrio, said just one of the scenarios it was looking at might contain more stimulus money. And that model is based on a consensus of various Wall Street economists’ forecasts; the bank’s own internal models aren’t counting on further relief.
JPMorgan’s economic forecast accounts for the effects of a government stimulus package only until the end of 2020. No more stimulus is built into its models for 2021.
The bank’s chief executive, Jamie Dimon, and his peers have all pointed out that the industry is grappling with a great deal of uncertainty about the future. JPMorgan might be overprepared if the economy fares better than expected — but a worst-case scenario could still expose the bank to heavy losses.
Although his bank is not expecting further federal relief next year, Mr. Dimon said another round of stimulus would be important.
“There are still 12 million people unemployed. There is still a lot of pain and suffering. There are still a lot of small businesses that need help,” he said.
Indeed, calls for more government aid to struggling businesses are growing, even as an impasse in Washington seems unlikely to end as Election Day draws near.
On Wednesday, a former Goldman Sachs executive, Gary Cohn — who served for a year as President Trump’s economic adviser — urged lawmakers to get a deal done quickly.
“This isn’t a matter of politics, this is a matter of protecting our economy as we know it,” Mr. Cohn wrote on Twitter.
LONDON — Schroders, a big asset management firm, wants more of its workers to return to its office in the City of London. Over the summer, it encouraged people to come in for a day to test their commute and so the firm could demonstrate the new safety measures in place, including an app to order food from the canteen.
Last week, about 15 percent of its 2,500 employees were in the office.
A 15-minute walk away, in the building where the law firm Dentons employs 750 workers, fewer than 10 percent were in the office. Two streets to the west, Goldman Sachs’s new 826,000-square-foot European headquarters were about 15 percent full. In east London, in Canary Wharf’s cluster of towers, Citigroup had about 15 percent of its employees in an office that usually fits 5,000. In cities across the country, the offices of the advertising firm WPP were only at 3 percent capacity.
Britain’s sparsely populated offices have put the economy in a quandary. The dry cleaners, coffee shops, lunch places and clothing retailers specializing in suits that serve areas packed with offices are starved of their customers. Many are still shut. In a country that relies on consumer spending to fuel economic growth, the government and business lobby are urging people to return to their offices, pressuring civil servants to set an example, and in turn spend more money on food and travel and in city center shops.
On Sunday, Dominic Raab, a government minister, said, “The economy needs to have people back at work.”
But the companies charged with responding to this call have discovered that they can function productively with their staff working at home, and many aren’t in the mood to ask employees to risk getting on crowded trains or buses to return to the office.
Take the City of London, the financial and legal hub, which before the pandemic was the destination for more than half a million daily commuters. At the start of the month, many of the lunch chains were still unlit and locked, and the train stations were significantly quieter — so were the pubs.
“The people are just not coming back,” said Robert Cane, who has worked at a dry cleaners and shoe repair business in the City for the past six years. “Half of the people have left the offices. I’m watching them evacuate daily.”
In the spring, Britain entered its worst recession since record-keeping began in 1955. After a sharp decline in economic activity during the national lockdown to control the spread of the coronavirus, a rebound started to take hold as early as May. The strength and sustainability of that recovery is still being determined, though there are concerns it will be short-lived as coronavirus cases rise in Britain and continental Europe.
Catherine McGuinness, policy chair at the City of London Corporation, the district’s governing body, said Tuesday that she was “very concerned” about the lack of foot traffic for the small businesses dependent on office workers, especially in the coming months as government support programs end. The corporation has offered rent holidays and business advice, but “it’s just a conundrum” for those businesses, Ms. McGuinness said.
“I do think there is a major challenge looming about unemployment rates and insolvency rates,” she said.
In August, after months of encouraging working from home, the British government changed its advice: People could return to their workplaces if employers made them safe. After only a trickle of people responded, the government planned an advertising campaign — to coincide with the reopening of schools last week — to reassure employees that workplaces have been made safe over the summer. That campaign has reportedly been delayed as ministers study a jump in infections across the country. On Tuesday, new restrictions were put in place in England banning gatherings of more than six people, but they don’t apply to workplaces.
Even if the campaign works, social distancing measures that reduce the capacity of workplaces will continue to suppress the office-dependent economy. It’s a problem that isn’t unique to Britain.
“Our policy is that we won’t have more than 25 percent of any one floor,” said Jeremy Cohen, Dentons’ chief executive officer for the United Kingdom and Middle East. While this policy will be reviewed next month, the law firm is still far from reaching this capacity, he said.
In the long run, the pandemic has raised questions about the entire nature of the office economy. The role of the office could substantially change as many companies consider how to make some, or all, aspects of remote working permanent. A deputy governor of the Bank of England warned that a lack of investment in commercial real estate could be one of the reasons the long-term economic impact of the coronavirus might be worse than the central bank recently forecast.
In July, Dentons said it would close two of its six offices in Britain, and the company is reviewing the ones that are left. In the future, Mr. Cohen said, he expects to see a “very different” arrangement, where the offices are designed for more flexible working to accommodate teamwork and training, but could also be smaller.
Association Coffee is a shop across the street from a City of London train station. It used to have five employees making about 600 coffees a day; the morning rush could cause a 10-minute wait. Now just one person makes coffee.
Christian Baker, the shop’s manager, said that its business was a direct reflection of the number of workers in the surrounding offices, and that to break even he would need to sell two and a half times the current volume of coffee.
“I have massive empathy for the people who are working from home,” Mr. Baker said. “I understand why you wouldn’t want to come in when you can do your job remotely.” The problem, he added, is that “we’re in the position of serving them.”
A short walk away, James Shoe Care is running at a loss. An employee, Robert Cane, said he was worried that he’d be without a job once the government’s furlough program — which provides him wage subsidies — ended next month.
“If the offices are empty, then we get no work,” Mr. Cane said. “That’s why I’m only getting four, if I’m lucky five, people a day. And that’s just people who live around here.”
The sticking point for central London is that many people must commute by mass transit, where social distancing would have been difficult, if not impossible, during prepandemic rush hours. Last week, after Britain’s August bank holiday unofficially marked the end of summer, use of National Rail was only a third of last year’s volume. In the past week, the number of journeys on the London Underground have risen noticeably but are also only a third of last year’s. In Britain, fewer people coming out of lockdown are using public transport again than in France, Italy and Germany, according to Google Mobility Reports.
“People aren’t worried about being in the office. What they’re worried about is getting to the office,” said Emma Holden, the global head of human resources at Schroders. “Seventy five percent of our people commute. That is probably the greatest source of anxiety.”
Though Schroders had been a proponent of flexible working before every company was forced to be, Ms. Holden said employees would still be expected to regularly go into the office and work with their teams. Now, with socially distanced desks and a one-way system for walking around the work space, the office can hold half of its normal capacity, she said.
Employees are asked to speak with their manager if they are worried about returning to the office, Ms. Holden said. “And if there’s a reason why you can’t come in, then that’s OK,” she added.
She said that there was no deadline to reach 50 percent capacity but that having teams working together in person was important for innovation. Nonetheless, the firm has decided to roll out a new flexible working regime globally.
For the coffee shops and dry cleaners, fewer office workers will be a lingering problem. But the businesses’ customers aren’t ready to shoulder the burden of their survival.
“I think we have much more of a hybrid going forward, so people will probably come and work two or three days in the office,” said John Lucy, the human resources director for Dentons in Britain. “That will have a massive impact on the local shops, restaurants, bars around the place. To be honest, I’m not quite sure what we can do about that.”
Mr. Solomon had been on the job as chief executive of Goldman Sachs, perhaps Wall Street’s most storied and vilified institution, for just over a year, working to broaden the bank’s offerings by pursuing lines of business that his predecessors had long avoided.
But his Main Street push had failed to impress shareholders. After Goldman’s investor day in January, the bank analyst Mike Mayo described some of these moves, including a credit card offered in partnership with Apple, as “somewhere between a distraction and a moonshot” and added that he didn’t know of a single investor who had bought Goldman’s stock for those reasons.
If stockholders were scratching their heads at the direction of the bank under Mr. Solomon, employees weren’t much clearer on what kind of leader he was. Lloyd C. Blankfein, the previous chief executive, was seen as a coolheaded strategist who had steered Goldman through the 2008 financial crisis. Mr. Solomon, a spare-time disc jockey, had a reputation for being blunt and pragmatic, but also intuitive and flexible.
Then, as Mr. Solomon was still getting situated, the pandemic hit, presenting him with the biggest leadership challenge — and opportunity — of his short time atop the bank. The crisis has shown Mr. Solomon to be a deft navigator who quickly adapted to changes that caught some of his bank’s bigger competitors flat-footed. But it brought an unforced error by Mr. Solomon that underscored the perils of a fun-loving attitude he has viewed as an asset when dealing with Goldman’s young work force.
Other challenges remain, including investigations by U.S. prosecutors and bank regulators into Goldman’s role in helping raise billions of dollars for 1MDB, a Malaysian sovereign wealth fund that some officials used as a personal piggy bank. A framework for the settlement with the U.S. authorities has been reached but not finalized, a person familiar with the matter said. Prosecutors declined to comment.
When New York City went into lockdown in March, Mr. Solomon sent most of the bank’s 40,000 employees home immediately and blessed the firm’s procurement of thousands of monitors and landline phone systems for use in home offices. He also got on hundreds of Zoom calls with clients to reassure them that Goldman would help see them through their mounting obstacles — and not necessarily for a fee.
Goldman’s early embrace of working from home helped traders capitalize on surging market activity in the first and second quarters. Their efforts pushed the firm’s stock and bond-trading revenues to recent records, while minimizing disruptions and encouraging worker loyalty. By contrast, JPMorgan Chase and Bank of America stumbled initially as they struggled to ready backup sites and, in some cases, created an atmosphere in which trading-floor workers felt pressured to go to the office.
“David has done a solid job navigating the Covid crisis,” said Justin Gmelich, a partner at the hedge fund King Street and longtime Goldman markets executive before that. He praised the firm’s flexible work-at-home policies and the insights that analysts and traders had provided him as a client, although he said he had concerns about the talent pool because at least a half-dozen senior traders had left the bank since Mr. Solomon’s ascension.
With nearly half the bank’s employees under the age of 30, his messaging appears attuned to the mores of a changing finance industry. Already, Mr. Solomon — a yogi and music lover — had brought a different vibe to the job, ripping up the firm’s stodgy dress code and talking about bringing one’s “whole self” to work. In managing Goldman’s response to the virus, he is also becoming an unlikely poster boy for a softer era on Wall Street, where personal well-being can take precedence over profits and displaying anxieties isn’t a matter of embarrassment.
Mr. Solomon, 58, did stumble into a minor scandal recently while indulging his favorite hobby. Last month, he took the stage to D.J. at a concert in New York’s affluent Hamptons beach community, while a large crowd partied in close quarters. The gathering drew the ire of Gov. Andrew M. Cuomo, who demanded an investigation. A spokesman for the state’s health department said the inquiry was continuing.
In two separate meetings with Goldman Sachs partners and members of the firm’s management committee after the event, he acknowledged that he had made a mistake, according to two people familiar with the matter.
And while he has long said that mixing and recording music is an enjoyable outlet that helps him connect with Goldman’s younger generation, some of the firm’s directors raised concerns last summer about the optics of his hobby, the people said. In side conversations, some directors have suggested that golf might be a better alternative, one of those people said.
“David admits it was a mistake to participate, and he’s told people at the firm that,” a Goldman spokesman, Jake Siewert, said of the Hamptons concert. Mr. Siewert added that Mr. Solomon had put live events on hold for the foreseeable future but planned to continue recording electronic music.
Since the earliest days of the coronavirus, Mr. Solomon had been watching it make its way from China to the United States and worried about its potential economic impact. In early February, he spoke with David Tepper, a well-known stock investor and Goldman alumnus, who had read a dire forecast for the virus in the medical journal The Lancet. The two were at a Super Bowl event in Miami, and Mr. Tepper said he had come to believe the illness could hobble the United States.
“I was struck by the fact that he was more worried than I was, and I was worried,” Mr. Solomon recalled. He began working on larger-scale contingency plans.
By the end of February, Mr. Solomon’s senior team was holding regular 6:30 a.m. meetings to discuss what Goldman should do to safeguard both its employees and its business if the virus spread more widely.
In March, after the coronavirus was declared a pandemic and most of Goldman’s workers went home, Mr. Solomon chose to go into the office daily. To lead, he said, was to show up physically.
“For me, it doesn’t seem right the C.E.O. of Goldman Sachs goes out to, you know, a country house, a suburb or some other place, and is not in charge, in the office, because that’s what we do,” he said in a phone interview in late June.
Mr. Solomon’s approach to the crisis has been a contrast to some of his peers. James Gorman, the chief executive of Morgan Stanley, worked remotely until early July, worried that returning to the office would put undue pressure on employees to follow suit. A visit to the trading floor by Bank of America’s chief executive, Brian Moynihan, early in the outbreak led some employees to question their decisions to work from home. (A bank spokeswoman said that was not the intent.)
“The message from David on down was so clear, that there were no questions asked, it didn’t matter,” said Jen Roth, 39, who runs the firm’s U.S. currencies and emerging markets business, about Goldman’s quick approval of work-from-home plans. Ms. Roth, who had never worked a single day from home until this year, set up shop in a bathroom of her parents’ suburban Philadelphia house — one of the few available rooms with a lockable door to field client calls with her spouse, children and parents nearby.
Zachary Fields, a 26-year-old associate in one of Goldman’s investing businesses, worked from his high school desk from his parents’ home in Delray Beach, Fla. “As long as I have a Wi-Fi connection, access to my computer, and Bluetooth headphones and videoconferencing, I can do my job,” he said.
But Mr. Solomon’s request this summer that some employees return to the office has led to grumbling among those who think a longer stretch of working from home is warranted. Others, however, would like to see Mr. Solomon encourage even more people to resume working from the office and have expressed those views to the C.E.O., a person familiar with the matter said.
The bank hasn’t determined when to bring all its workers back, but it won’t be this fall given the ongoing uncertainty about the virus, Mr. Siewert said.
For now, with everyone dispersed, Mr. Solomon has sought new ways to keep in touch with workers.
“Your jobs are safe during this crisis,” he said in an audio message distributed to the firm’s workers on April 2, noting that Goldman would provide additional family leave to employees. He attended an after-work “geek-out” session for employees on the topic of winemaking, and sipped the wine under discussion as he watched. All 150 participants had received the same bottle from the bank.
In late May, after a Black man, George Floyd, was killed by a white police officer, touching off nationwide protests over racial injustice, Mr. Solomon encouraged employees to speak more openly about race and intolerance. Fred Baba, a managing director in the firm’s markets division, responded with an email to a small group of colleagues discussing his experience with racism and describing the previous few months as “demoralizing.”
The email, which argued for mentoring people of color and supporting minority-owned business, soon inspired a Goldman podcast with Mr. Baba and an op-ed article on Bloomberg. Mr. Solomon also convened an emotional town-hall meeting on race, during which he choked up as Black partners shared their anguish over police violence toward Black people.
Mr. Solomon believes more openness will pay off. He recently held a virtual meeting with eight drug-industry chief executives in which they discussed race and the health crisis in a way, he said, that felt more frank than usual.
“We’re all being much more vulnerable as we’re trying to lead our people,” he said. “I think that’s effective leadership, and it’s working.”
For sale: Boutique hotel, convenient to Hollywood. 116 rooms, rooftop pool, jet-setting clientele. Previous owner spent $40 million on renovations before becoming an international fugitive. Asking price: $100+ million.
If that sounds like a steal — even in the middle of a global pandemic that has nearly ground travel to a halt — the Viceroy L’Ermitage Beverly Hills could be yours. Just contact the U.S. government.
Prosecutors moved to seize the hotel, about a mile from Rodeo Drive, in 2016 as part of a long-running investigation into one of the biggest foreign bribery and kleptocracy cases in history: the looting of more than $2.5 billion from a Malaysian sovereign wealth fund, 1Malaysia Development Berhad, known as 1MDB.
The property was commandeered from Jho Low, a financier turned fugitive whom authorities in the United States and Malaysia described as the architect of a brazen scheme that also ensnared a prime minister and one of Wall Street’s most powerful banks, Goldman Sachs. The stolen money was used to buy everything from paintings by Van Gogh and Monet to a custom-built yacht to a see-through grand piano. Some of the cash helped finance “The Wolf of Wall Street,” which earned Leonardo DiCaprio a Golden Globe for his performance as the stock-market scammer Jordan Belfort.
Now the hotel — the last of Mr. Low’s marquee properties to be sold by federal authorities — is being auctioned off, with proceeds to be split between the governments of Malaysia and the United States.
Viceroy, which operates the hotel, charges about $600 a night on average for rooms it markets as a “home-away-from-home for Hollywood elite, international dignitaries and jet-setting luxury travelers.” Federal authorities in Los Angeles and Washington are hoping to sell it for well north of $100 million in an auction this summer, according to people briefed on the matter.
“Luxury hotels in Beverly Hills don’t often come up for sale,” said Michael M. Eidelman, a Chicago bankruptcy lawyer hired as the special master for the auction. “We have received inquiries from a number of different groups, and groups from a number of different countries.”
But how aggressive the bidding will be remains an open question, with the future of the tourism industry very much in doubt. A resurgence of coronavirus infections is putting off — or reversing — reopening plans throughout the country, just as hotels were getting a chance to claw out of the hole opened up by lockdown orders.
Balance sheets are feeling the effects. A week ago, Blackstone Group, the big private equity firm, reported that it had missed a payment on a $274 million loan to four hotels that were in financial trouble even before the pandemic. In May, Tom Barrack’s Colony Capital said it was in default on $3.2 billion in debt for some 245 hotels in its portfolio.
Luxury properties have been hit particularly hard. Fitch Ratings, the credit rating firm, estimates that occupancy levels at those hotels were under 9 percent, partly because many have simply closed for now. The industry over all has been running at around 40 percent occupancy. It could take a long time to get back to normal: STR, a hospitality industry data firm, said it did not expect occupancy to rise above pre-pandemic levels before 2023.
But federal authorities aren’t interested in waiting to wrap up the five-year investigation into 1MDB. One of history’s most complex kleptocracy cases, it toppled the government of the former Malaysian prime minister Najib Razak and prompted a foreign bribery investigation of Goldman Sachs.
One former Goldman banker, Tim Leissner, has already pleaded guilty. He said he and others at the bank had conspired to circumvent internal controls to work with Mr. Low, paying bribes to officials in Malaysia in order to issue the bonds that raised money for the fund, which was intended to finance infrastructure projects in Malaysia. Mr. Leissner, who is married to the fashion designer and model Kimora Lee Simmons, agreed to forfeit up to $43.7 million.
Goldman itself has been in talks with federal prosecutors. The bank lobbied the top brass at the Justice Department this year to let it reach a settlement without having to enter a guilty plea to a felony charge. The bank and nearly two dozen employees have been charged with fraud in Malaysia as well, and Goldman has argued that any fine it pays to the federal government should take into account the penalties it could face overseas.
Mr. Low, who has never appeared in federal court to respond to fraud charges, has maintained that he did nothing wrong, according to his lawyers and representatives.
The forfeiture actions involving Mr. Low and his associates have moved on a separate track from the criminal investigation, led mainly by prosecutors in Los Angeles and Washington. In all, federal authorities have seized assets worth as much as $900 million, including Mr. Low’s investment interests in the EMI music publishing portfolio, the Park Lane Hotel in New York, the production rights to three Hollywood movies and a luxury shopper’s list of other assets.
In October, Mr. Low — who is believed to be living in China — and his associates gave up all claims to the seized property. Some has already been sold: Mr. Low’s stake in the EMI portfolio went to Sony for $415 million in 2018, and his share of the Park Lane Hotel, which overlooks Central Park, was sold last year for $139 million.
Federal prosecutors say that, so far, they’ve returned about $500 million to the people of Malaysia from selling seized assets. And they’re still looking for more: On Wednesday, the Justice Department said it was seeking the forfeiture of $96 million in cash and property, including accounts in Luxembourg and Switzerland, real estate in Paris, and two paintings by Andy Warhol.
Malaysia is seizing and selling, too. It collected an additional $126 million from the sale of Mr. Low’s superyacht, a 300-foot vessel with a helipad and 11 guest cabins. The Malaysian government also confiscated tens of millions of dollars in cash, gold and jewelry from Mr. Najib, who is trying to make something of a political comeback even as he stands trial there on corruption charges.
Mr. Low acquired the Viceroy L’Ermitage for about $40 million in 2010, and later spent the same amount on renovations. The latest sale began in earnest last month with Mr. Eidelman, the special master, and a broker soliciting so-called stalking horse bids, which set a minimum price to discourage frivolous buyers. The auction is expected to be completed sometime this summer, and the government has the right to reject any prospective bidder after a background check.
The buyer will have the right to terminate the management contract of Viceroy, which also runs luxury hotels in several other U.S. cities and Latin America. A spokeswoman for Viceroy declined to comment.
The sale of the L’Ermitage could be a signal of what awaits any other luxury properties that land on the auction block because of bankruptcy filings or foreclosures caused by the pandemic.
The newly reopened Mark Hotel in Manhattan, one of New York’s most exclusive hotels, successfully fended off an attempt by one of its lenders to force a foreclosure auction after it missed an interest payment on a $35 million loan. A New York judge temporarily blocked the foreclosure last month, saying that a small creditor was trying to take advantage of the pandemic to seize control of a hotel worth nearly a half-billion dollars.
Before the judge scuttled the sale, a representative for the lender said in court filings that at least 115 groups had expressed interest in bidding for the Mark Hotel. If that claim is true, Mr. Eidelman may be right in assuming there will be keen interest in the L’Ermitage.
If the country continues to reopen, said Stephen Boyd, a senior director at Fitch Ratings, luxury hotels could rebound faster than other lodgings. The reason: Their guests are ones “who still have jobs and still have money.”
While many other industries are deeply threatened by the coronavirus outbreak, the country’s banks are still earning billions, in part because the market volatility it caused was a moneymaking opportunity for their trading divisions.
But the chaos wrought by the pandemic, which has shut down businesses across the country and put millions of people out of work, has them setting aside billions of dollars to prepare for the defaults that lie ahead.
“This isn’t a financial crisis,” Citigroup’s chief executive, Michael Corbat, said Wednesday. “It’s a public health crisis with severe economic ramifications.”
To prepare for the fallout, Citigroup and other banks are adding to their reserves — which is pinching their profits. Citi said Wednesday that it had earned $2.5 billion for the quarter, a 46 percent drop from a year earlier. It added $7 billion to its reserves, bringing its pool to nearly $21 billion.
“While we’ve built significant loan loss reserves,” Mr. Corbat said. “No one knows what the severity or longevity of the virus’ impact on the global economy will be.”
Mr. Corbat praised his employees for their efforts to help clients in their time of need, and said the bank was using its largely empty corporate cafeteria to make meals for food banks.
“We know many consumers are facing real struggles, and we’re doing our best to support them,” he said.
Bank of America also announced its quarterly results Wednesday, reporting a profit of $4 billion in the first three months of 2020, down from $7.3 billion a year earlier. The difference came mostly from a $3.6 billion increase in the amount of money the bank set aside for bad loans; the total reserved by the bank during this quarter reached $4.8 billion.
But as bad as the coronavirus has been for most businesses, at Bank of America it triggered a 34 percent surge in revenue from the sales and trading of stocks, bonds and other financial products. That gain was generated during a period when some employees say they have been under pressure to go to the office despite the health risks. Bank of America said in a statement last week that it was “sparing no expense or consideration taking care of our people.”
At Goldman Sachs, profits fell 46 percent to $1.2 billion, reflecting a set-aside of an additional $937 million for potential credit losses, losses in its asset-management division and a rise in technology costs.
But the bank’s revenue was essentially flat, helped in part by a 28 percent upswing in trading revenue and a 25 percent rise in investment-banking fees related primarily to direct lending to corporations and help when they raised public money through the bond and stock markets.
On Sunday morning, Goldman Sachs, the financial partner on the new Apple credit card, said it would allow all cardholders who asked for help to skip their March credit card bill. The interest would disappear, never to be charged. And Goldman would foot the bill itself, as the financial backer …
As the markets rage and more businesses reel from the impact of the spreading coronavirus, President Trump plans to meet with officials from the nation’s banks at the White House on Wednesday afternoon.The meeting, which is scheduled for 3, is expected to be attended by top executives of the …
Bernie Sanders has proposed a wealth tax on the richest Americans, criticized big businesses for turning huge profits while paying little in taxes and said he believed billionaires should not exist.
His win in Tuesday’s Democratic primary in New Hampshire has made plausible what Wall Street has for months considered a worst-case scenario: the inauguration of President Sanders.
An avowed socialist whose plans include disemboweling the private health care system and cracking down on lending and other banking activities, Mr. Sanders is considered by many traders, investors and bankers to be the only candidate less desirable than the widely loathed Senator Elizabeth Warren.
Late Tuesday, as Mr. Sanders was pulling out a close win in New Hampshire, Lloyd Blankfein, the former Goldman Sachs chief executive, wrote on Twitter that the Vermont senator would “ruin our economy” if elected president.
He succinctly summed up Wall Street’s feelings, calling Mr. Sanders just as polarizing as President Trump, while being worse for the country. “If I’m Russian, I go with Sanders this time around,” he wrote.
The post quickly attracted thousands of comments from Mr. Sanders’s supporters — some of whom invoked Goldman’s position at the center of the 2008 financial crisis.
“This is what panic from the Wall Street elite looks and sounds like,” Faiz Shakir, Mr. Sanders’s campaign manager, responded in a tweet on Wednesday morning.
Mr. Blankfein, who once said that he was looking forward to “unrestrained tweeting” in retirement, did not respond to messages seeking comment on Tuesday. But his tweet — his latest tussle with a progressive candidate from his own party — was read by many as a direct manifestation of big money’s growing unease with the self-described democratic socialist.
Others on Wednesday brushed off Mr. Sanders’s victory, saying he would be an untenable nominee in a race against Mr. Trump, one that could make people do the unthinkable: vote to re-elect the president.
Mike Novogratz, a Goldman Sachs alumnus who runs the merchant bank Galaxy Digital, said Mr. Sanders’s oppositional nature had prompted “too many friends” to say they would vote against him in November. “And they hate Trump,” he said.
Mr. Sanders’s narrow victory in New Hampshire has helped position him as the candidate with the most enthusiasm from the party’s most liberal wing. Former Mayor Pete Buttigieg of South Bend, Ind., who finished just behind him, and Senator Amy Klobuchar of Minnesota, who surged to third, split the centrist vote on Tuesday.
Mr. Sanders’s surge has come at the expense of Ms. Warren, who some on Wall Street have warmed to. Ms. Warren, a self-described capitalist who says she wants to work within the system to affect change, appears to many to be more malleable: In recent months, she has already walked back aspects of her “Medicare for all” plan, a universal health care initiative similar to Mr. Sanders’s. She also has a history as a onetime Republican who wrote scholarly research on bankruptcy law as a professor and adviser to big corporate clients.
But either candidate would represent a stark reversal from Mr. Trump’s economic agenda, which has been centered on cutting taxes and rolling back regulations. Perhaps as a result of that, their campaign contributions from finance-industry workers have fallen well short of more moderate peers, like Mr. Buttigieg and Ms. Klobuchar, according to year-end figures collected by the Center for Responsive Politics.
Last year, Mr. Sanders proposed the creation of a wealth tax on the richest Americans to help pay for his own “Medicare for all” health program, universal child care and an overhaul to the housing market that would include big subsidies for first-time home buyers. The proposed tax on the assets of households with a net worth above $32 million — about 180,000 households in total — is projected to raise $4.35 trillion over a decade.
He pairs those proposals with a combative tone.
Frustrated over what he views as an “outrageous” degree of inequality in the United States, Mr. Sanders has said billionaires should no longer exist here. And a recent Sanders campaign ad took particular aim at Jamie Dimon, the chief executive of JPMorgan Chase, calling him “the biggest corporate socialist in America today,” an overpaid executive who embraces a brand of socialism “that has eroded our society.”
Vin Ryan, founder of the venture-capital firm Schooner Capital and a supporter of Ms. Warren’s, said he believed Mr. Sanders’s unrelenting approach would hurt his chances against Mr. Trump.
“Bernie Sanders, I think, is a lightning rod,” Mr. Ryan said. “And he’s going to be killed with the socialism by the Republicans.”
As much as many independent voters don’t like Mr. Trump, he said, they could be motivated to vote for him anyway by “pocketbook issues” and the relatively healthy economy that has marked his first term.
That has some in finance expecting that a general election involving Mr. Sanders would result in the president’s largely pro-business policies extending for four more years.
“The lack of any stock market reaction to Sanders’s surge suggests that investors either still don’t believe he can win the Democratic nomination against the more centrist candidates or, alternatively, that Sanders will win the nomination but, in doing so, his lack of appeal to independents makes it even more likely that Trump will be re-elected,” Andrew Hunter, senior U.S. economist at Capital Economics, wrote in a note to clients.
That could change, however, if Mr. Sanders shows signs of having a broader appeal as the primary season continues.
“If Sanders is the Democratic nominee and polls show a reasonable chance of him winning the election, then we expect a sharp market sell-off, especially for financials,” said Brian Gardner, an analyst at Keefe, Bruyette & Woods. “Part of the reason is that investors have discounted Senator Sanders’s chances. At some point investors might reassess this scenario and it is not, in our view, priced into the market.”
The antagonism goes back years: In 2012, Mr. Sanders targeted Mr. Blankfein in a speech from the Senate floor, labeling him the “face of class warfare” for supporting cuts to Social Security, Medicare and Medicaid.
Mr. Blankfein, a registered Democrat, supported Hillary Clinton in the 2016 presidential election and has donated to Republicans in the past. At a CNN conference in October, he said he did not see himself reflected in the current party.
But as unloved as Mr. Sanders currently is in the finance industry, not everyone agreed with everything the former Goldman boss had to say.
Mr. Ryan, the Schooner Capital founder, said he didn’t think Mr. Blankfein’s suggestion of Russian favoritism — tongue-in-cheek as it was — invoked the right issue.
Hello from Davos, Switzerland, where the World Economic Forum is wrapping up. (Want this in your inbox each morning? Sign up here.)
Goldman issues an ultimatum to drive corporate diversity
Goldman Sachs’s C.E.O., David Solomon, prompted chatter on Wall Street yesterday about his plan to require I.P.O. clients to have at least one “diverse” board candidate before the bank helped them list in the public markets.
• “We’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,” Mr. Solomon told CNBC at the World Economic Forum in Davos.
• The mandate starts July 1 for U.S. and European clients, and starting next year, Goldman will require two diverse board members.
• “We might miss some business, but in the long run, this I think is the best advice for companies that want to drive premium returns for their shareholders over time,” Mr. Solomon added.
It’s a big deal in the I.P.O. world, given that Goldman was the top underwriter of U.S. offerings last year.
And it’s the latest push for diversity within Corporate America, Jeff Green of Bloomberg notes. The money-management firms BlackRock and State Street plan to vote against directors at companies without a female director. And California-based public companies with all-male boards face a $100,000 fine.
Mr. Solomon’s decision is a change for Goldman, Liz Hoffman of the WSJ points out. The firm had previously argued, as an underwriter of WeWork’s I.P.O., that it would simply let investors decide if they liked a company’s board.
The big questions: Will rivals like Morgan Stanley and JPMorgan Chase follow suit? And how firmly will Goldman stick to this new rule?
At Davos, Big Business is eager to appear woke
Goldman’s announcement was just one of several initiatives that companies announced at the World Economic Forum to show that they were committed to social change.
Business leaders sought to demonstrate their environmental credentials, with many announcing plans to sharply cut their companies’ carbon footprints. BlackRock’s Larry Fink even wore a scarf representing the pace of global warming.
“Revolutionary sentiments” erupted in unexpected places at the forum, Tim Wu writes in an NYT opinion column: At times he thought he “had mistakenly wandered into a business-casual Bernie Sanders rally.”
But there are reasons to be skeptical:
• Many companies haven’t outlined how they will fulfill their climate pledges.
• Phumzile Mlambo-Ngcuka, executive director of the U.N.’s gender-equality program, warned against “the illusion of change” at the forum, Politico reported.
The Davos roundup:
• George Soros pledged $1 billion to create an international network of universities to promote an appreciation of “personal autonomy.”
• The investor Bill Browder, an outspoken critic of President Vladimir Putin of Russia, said he was warned of potential threats to his safety before he left for Davos.
The Chinese authorities reported a sharp increase in the death toll from the outbreak this morning, while more countries are investigating potential cases of infection. It’s stoking fears of another SARS-like disaster.
Here’s the latest:
• The Chinese National Health Commission has reported at least 25 deaths — up by more than a half-dozen in 24 hours — and 830 confirmed cases.
• Beijing expanded travel restrictions to a total of 12 cities, while Wuhan, the center of the epidemic, remains almost completely locked down.
• But experts say that the travel restrictions will do little to stop the virus’s spread outside China, Chris Buckley and Javier Hernández of the NYT report.
The economic effects are still being felt, Alexandra Stevenson of the NYT writes. The Hang Seng Index in Hong Kong was down 2 percent this morning, while Asian markets fell broadly yesterday. And the outbreak may hurt consumer confidence in what’s normally a busy spending season.
It’s still unknownhow quickly China can contain the outbreak. While the World Health Organization declined to label it a global health emergency yesterday, it will revisit that decision in 10 days.
Wells Fargo’s ex-C.E.O. is fined over fake accounts
The bank’s onetime chief, John Stumpf, is among several former executives to be fined millions for their roles in promoting a toxic culture that led to sham accounts for customers and other problems, Stacey Cowley and Emily Flitter of the NYT report.
Mr. Stumpf was fined $17.5 million — “the largest individual fine in the history of the bank’s main federal regulator,” the Office of the Comptroller of Currency — and received a lifetime ban from the banking industry. Two other former executives also paid fines, and five others were charged.
The bank regulator also released fresh details about Wells Fargo’s “relentless pressure on employees to meet its unrealistic goals, which included ‘hazing-like abuse,’ ” Ms. Cowley and Ms. Flitter write. “Many employees said they felt they had only two options: Cheat or get fired.”
• One employee wrote to Mr. Stumpf and another senior executive that he had faced “less stress in the 1991 Gulf War than working for Wells Fargo.”
The big picture: “The settlements were a rare instance of personal consequences for those at the highest echelons of the banking industry,” Ms. Cowley and Ms. Flitter write.
A reminder: Jeff Bezos is a celebrity now
Public accusations that Saudi Arabia hacked Jeff Bezos’ phone and learned about his divorce are only the latest indication that the once publicity-shy Amazon chief has become an unlikely tabloid fixture, Karen Weise of the NYT notes.
• Remember when Mr. Bezos gushed over “Star Trek”? Or joked that washing dishes every night was “the sexiest thing I do”? Or said he hated to travel because he felt disconnected from the office?
• That all changed in recent years, particularly after revelations that he had been having an affair with Lauren Sanchez, a former TV personality — and when he then accused The National Enquirer of trying to blackmail him.
• What has happened since: Mr. Bezos and Ms. Sanchez have been seen at Wimbledon and in St. Tropez, and were featured in gossip columns for hosting a party in New York for one of Meghan Markle’s “BFFs.”
Worth noting: A report on the phone hacking shows no evidence that The National Enquirer had obtained Mr. Bezos’s photographs and texts from the Saudis.
Accounting fraud became a particular focus of the Justice Department toward the end of 2019. In December, federal prosecutors indicted executives from Outcome Health and MiMed, and opened an investigation into whether BMW, the German automaker, manipulated its sales figures. Here’s a look:
The Malaysian authorities have indicted 17 Goldman Sachs executives on allegations that they played roles in siphoning off about $2.7 billion of the $6.5 billion raised for the 1MDB fund. How that case will be resolved is an open question because the Malaysian authorities are looking to recoup all of the money raised on behalf of 1MDB.
In the United States, federal prosecutors are looking at possible money-laundering and Foreign Corrupt Practices Act violations by Goldman. A settlement could include a guilty plea by its Asian subsidiary, which Goldman would then most likely put out of business.
Any settlement Goldman reaches with the federal authorities is unlikely to hamstring the bank. The Securities and Exchange Commission has shown a willingness to waive its “bad actor” rules, which bar financial institutions from offering securities to the public. And the large fines and guilty pleas that Citigroup, JPMorgan Chase, Barclays, Royal Bank of Scotland and UBS agreed to in 2015 for manipulating foreign currencies did not cripple those banks.
Any settlement with the Justice Department and the S.E.C. is likely to require Goldman to have an outside monitor to ensure that it did not violate securities laws in the future. But that would most likely be just another cost of doing business for the firm, which would certainly be able to survive any issue arising from the monitoring.
Criminal prosecutions for accounting fraud are uncommon, but late last year, prosecutors took a much more aggressive position in accusing senior executives of violating accounting rules.
In December, federal prosecutors indicted a co-founder of Outcome Health, Rishi Shah; the company’s former president, Shradha Agarwal; and its chief financial officer, Brad Purdy, of money laundering and mail and wire fraud for making false statements to a bank to obtain almost $1 billion in loans and equity investments.
The Justice Department also charged the former MiMedx executives Praker Petit and William Taylor of “channel stuffing” by selling more products to distributors than they needed, to “juice” corporate sales. According to the indictment, MiMedx “did not meet the low end of its revenue guidance until the very last day of the quarter in each of the four quarters of 2015.” That is sure to arouse suspicions about whether the sales were legitimate.
If federal prosecutors can convince a jury that the defendants violated the securities law, substantial prison terms are likely.
The issue for BMW will be whether its reporting of vehicle sales also misled investors. The S.E.C. is investigating whether the company manipulated figures to make it appear healthier than it was. If it is found to have done so, the company could face a substantial penalty.
In September, Fiat Chrysler paid $40 million to settle claims that it used dubious practices to inflate its sales. The S.E.C. concluded that Fiat Chrysler had provided inaccurate information to investors, in violation of federal securities laws.
The House of Representatives passed the Insider Trading Prohibition Act, which for the first time would specifically define what constituted insider trading and expand what could be prosecuted.
If Senate approval follows and the legislation becomes law, any person “while aware of material, nonpublic information relating” to a company could be considered liable for insider trading. Communicating confidential information to others, the tippees, would be prohibited so long as the information “would reasonably be expected to have a material effect on the market price” of any security.
The legislation also covers obtaining information by “theft, bribery, misrepresentation or espionage” along with any “conversion, misappropriation, or other unauthorized and deceptive taking of such information.” That would subject many means of obtaining confidential information to the new prohibition on insider trading.
Providing a definition would be a substantial step forward for insider trading prosecution because prosecutors have had to rely on the courts to define what is — and is not — insider trading. We’d be likely to see an expansion of what types of conduct could be subject to prosecution. Whether that is a good thing remains to be seen.
Even if the legislation is not adopted, a ruling at the end of 2019 will make it easier for the Justice Department to pursue insider-trading cases.
A federal appeals court upheld the insider-trading convictions in United States v. Blaszczak. The court found that a securities fraud statute added to the Dodd-Frank Act does not require prosecutors to prove that the tipper received a personal benefit from the tippee. This is likely to allow prosecutors to pursue more cases that involve trading on confidential information without requiring proof that there was a quid pro quo exchange.
Whether that, too, is a good thing also remains to be seen.