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Ten years after the financial crisis, banks are raking in record earnings. When Lloyd Blankfein steps down as the CEO of Goldman Sachs in a few months, he’ll be leaving one of America’s most powerful banks on a high note for the entire industry. Life is good on Wall Street.
When Blankfein announced his departure after 12 years as chief executive, it came as the company revealed a 44% jump in second-quarter profit. While he doesn’t deserve all the credit, it’s worth noting the bank has generated a cumulative $92 billion in net profit under Blankfein, the son of a postal clerk.
The former metals trader has had uncanny staying power—the only other boss of a big bank who kept his job through the 2008 crisis is Jamie Dimon, who rose to CEO of JPMorgan about six months before Blankfein took over at Goldman. Perhaps Blankfein’s decision to step down now, earlier than expected (paywall), reflects a trader’s intuition for timing.
Despite bumper earnings, bank shares have lagged the overall market this year. The likely reason is that investors think the US, and perhaps the global economy, is getting closer to its next downturn.
It has been nine years since the last recession, almost double the average for the US economic cycle. The bull market in US stocks is also nine years old, the second-longest run on record. Unemployment is near historic lows following an unprecedented stretch of job gains. Other signs of late-cycle activity, like risky US subprime lending (paywall), are popping up. And then there’s escalating trade war between the US and the rest of the world, or the fact the Federal Reserve is raising rates while other central banks keep them at historic lows.
In a recent conference call with JPMorgan, a banking analyst said she’s getting a lot of pushback from investors because “we’re long in the tooth in the economic cycle.” The bank’s CFO, Marianne Lake, countered that there are no signs of fragility so far, but noted that the biggest US bank by assets is preparing for the inevitable slowdown.
Indeed, finance execs have recently been citing the “credit cycle” more than at any time since the last downturn, according to a Sentieo analysis of earnings calls. Blankfein is more aware of these shifts than just about anyone. “When times are tougher, you can’t leave. And, when times are better, you don’t want to leave,” he said in his farewell memo to staff. Nonetheless, he wrote, “it feels like the right time.”—John Detrixhe
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