Four of the nation's six biggest banks made a profit from trading on every single business day during the first quarter. Daily profit often clocked in at over $100 million per bank.
Goldman, Bank of America and JPMorgan Chase all reported the performance in their quarterly reports. Citigroup, which didn't break out these numbers, also had a perfect Q1, according to Bloomberg and the NYT.
It's rare (though not unheard of) for even one bank to have a perfect quarter like this — let alone four. Banks usually make more money than they lose in their trading operations, but they typically have some down days mixed in with the up days.
It's not entirely clear why this happened last quarter, but here are a couple factors that may have played a role:
Ultralow interest rates set by the Fed
The near-zero short-term interest rate set by the Federal Reserve means that banks can borrow money essentially for free. When you can borrow for free, you can even lend money to the government and make a profit. Ten-year Treasury bonds paid an average interest rate of 3.7 percent last quarter, Bloomberg notes.
"The trading profits of the Street is just another way of measuring the subsidy the Fed is giving to the banks,"
a guy fromthe co-founder of a company called Institutional Risk Analytics told Bloomberg. "It's a transfer from savers to banks."
It's a good time to be a middle man.
Banks' trading business is not solely based on making bets with their own money; it's also acting as a market maker, buying from clients that want to sell, and selling to clients that want to buy. Banks profit from the gap between what buyers and sellers are willing to pay — a difference known as the spread.
The fact that there are now fewer big banks — Lehman's gone, Bear Stearns and Merrill Lynch were folded into JPMorgan and B of A — means there's less competition for this business. And the banks said the flow of customer orders was particularly high during the quarter, the NYT says.
"This is not about hitting home runs," a risk management expert told the NYT. "This is just, as we call it, milking the market and your captive client base."