Why US banks earn so much more than German banks

B.Before Deutsche Bank presents its business figures for the third quarter on October 28th, not all analysts are counting on the fact that Germany’s largest bank will generate a quarterly profit. In the United States, on the other hand, many banks this week, the latest Morgan Stanley on Thursday, reported billions in profits. Morgan Stanley earned $ 2.6 billion, 25 percent more than in the same quarter of the previous year, between the beginning of July and the end of September 2020. This is the second-highest profit Morgan Stanley ever achieved in a quarter.

The day before, competitor Goldman Sachs had reported the highest quarterly earnings since 2010. And the big bank JP Morgan achieved a profit dimension of 9.4 billion dollars, which is mostly only known from technology giants like Apple or Micorsoft.

While in Germany return on equity targets of 8 percent seem almost utopian for banks, Goldman has achieved more than 17 percent and JP Morgan at least 15 percent this year. The weakness of the European, especially the German, banks is always surprising. And the strength of American banks too.

Deutsche Bank on the go

Deutsche Bank is even recognizable on the mend. In July 2019, CEO Christian Sewing announced a radical drastic cure with the cessation of global stock trading and the shedding of 18,000 employees. Now it seems possible that Deutsche Bank will make a profit for the first time in five years in the year of the Corona crisis. In the first half of the year, a profit of more than 300 million euros was posted.

But Goldman Sachs didn’t earn 300 million euros in the last quarter, but the equivalent of 3 billion euros – by the way, twice as much as a year ago. One key to this success: The New Yorker bank does not earn its money with lending, but with the capital market business.

This is where the income of all banks gushes, especially at Goldman. Goldman’s earnings rose by a whopping 49 percent in bond trading, for example, which Deutsche Bank also counts as one of its strengths. Morgan Stanley took 22 percent more in the bond business.

The capital market business is booming – thanks to Corona

But why is capital market business booming, of all things, during the Corona crisis? Many companies are losing their sales, they need liquidity. They are therefore looking for help from banks to sell bonds to investors on the capital market. Added to this are the strong price distortions on the stock exchanges this year – first the deep fall in March, then in the past few months the recovery that many had unexpectedly far-reaching. These fluctuations in the stock and bond markets attract or force investors to trade in securities. Both make the tills of investment banks ring. Also that of Deutsche Bank.

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