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Trading Bonds, Not Making Loans, Is Fueling Banks' Profits

by Jacob Goldstein
Apr 19, 2010

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The nation's three biggest banks — Bank of America, JPMorgan Chase, and Citigroup — all said in the past few days that they turned a profit in the first quarter of this year. One interesting detail: All of the banks made more of their profits from Wall Street-style trading and banking than from Main Street-style lending.

It's striking that these giant banks, which have ATMs on every corner, aren't making most of their money by borrowing short and lending long — the traditional (and traditionally safe, boring) way banks make money. Instead, they're playing in the more volatile world traditionally associated with investment banks.

In its first-quarter earnings statement released this morning, Citigroup said its division that handles investment banking and trading contributed $3.2 billion of the bank's $4.4 billion in profits for the quarter. Most of that division's revenues came from the bond markets.

B of A's profits were driven by what the bank called "record performance in sales and trading," with a key contribution from trading and sales of bonds, currencies and commodities. And JPMorgan Chase said $2.5 billion of its $3.3 billion in profits came from its investment banking division, which made a lot of money trading bonds.

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