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US banks: unequal benefits during the pandemic

It was a banner year for Wall Street traders and investment bankers in 2020. But the trading and advisory fee boom hasn’t benefited everyone equally as the latest batch of fourth-quarter earnings showed.

Jamie Dimon, chief executive of JPMorgan Chase © Bloomberg

Morgan Stanley, Goldman Sachs and JPMorgan Chase led the pack with trading revenue gains that range from 20 per cent to 29 per cent. Bank of America and Citigroup had more muted performances with gains of just 7 per cent and 14 per cent.

Citi was also the outlier when it comes to investment banking. Revenue from its unit fell 5 per cent during the quarter. This compares to the 27 per cent rise recorded at Bank of America and Goldman Sachs, the 37 per cent increase at JPMorgan Chase and the 46 per cent surge at Morgan Stanley.

The underperformance in trading at BofA and in investment banking at Citi matters.

Here’s why: although Wall Street executives have cautioned that a repeat of last year’s fee and trading bonanza is unlikely, conditions have thus far remained favourable. Both mergers and acquisitions and initial public offerings activity has ticked up in the first few weeks of the year, and record debt sales last year should lead to more refinancing. 

The same can’t be said for consumer banking, which accounted for more than a third of BofA’s revenue and 40 per cent of Citi’s revenue in 2020.

Column chart of Earnings per share, $ showing Goldman posts biggest earnings on Wall Street

The problem isn’t just low interest rates, which are squeezing lending margins and dragging net interest income lower. Consumer confidence remains shaky as the pandemic continues, which in turn is weighing on loan growth. The lending books at both Citi and BofA shrank year-on-year during the fourth quarter, and Joe Biden’s administration won’t change this overnight.

While JPMorgan — the country’s largest lender by assets — is also facing similar headwinds, it has been able to rely on trading and investment banking to offset some of the pressure on its consumer banking unit. 

Without a pick-up in loan growth, Citi and BofA will struggle to keep up with the pack this year. Go deeper with the FT’s Lex column.

Can QuantumScape live up to its turbocharged hype?

QuantumScape, a Silicon Valley-based battery start-up, enjoyed a stellar run last year after it merged with the blank cheque company Kensington Capital Acquisition Corp

The company — which has yet to report any revenue — sped to a near $50bn valuation after reporting a battery breakthrough that would help make electric vehicles “the world’s dominant form of transportation”.

Jagdeep Singh, QuantumScape founder and chief executive © FT montage

The Stanford University spinout is backed by a long list of luminaries, including Bill Gates, Khosla Ventures, Kleiner Perkins and, crucially, Volkswagen

The German car company has invested $300m in QuantumScape and an undisclosed sum to build its first battery factory. Tesla’s co-founder JB Straubel also sits on the board. 

But many battery scientists say while the data QuantumScape has released looks promising, it’s too soon to declare a breakthrough in solid-state battery technology, reports the FT’s Henry Sanderson in this deep dive on the company. 

Scientists have spent decades trying to crack solid-state batteries, which use a solid rather than a liquid electrolyte. They promise a step change in energy density, as well as improved safety and the ability to charge faster. If the changes can be achieved at scale, it would help electric vehicles truly compete with their petrol cars.

Line chart of Share price of Kensington Capital Acquisition Corp/QuantumScape ($) showing QuantumScape shares rocket as Spac frenzy mounts

QuantumScape says it has successfully pulled off the much sought-after solid-state battery by creating a ceramic material about the size of a playing card and as thin as a human hair.

In lab testing at room temperature, the cells maintained their capacity through 1,000 one-hour charging and discharging cycles, meaning a theoretical life of 300,000 miles for a Tesla Model S. The company also says the batteries can be charged to 80 per cent capacity in 15 minutes.

Column chart of Annual consumption of batteries (GWh) showing Global lithium battery demand will be driven by electric vehicles

But for many investors, the jury is still out. The stock has dropped almost 60 per cent since its peak on December 22 amid fears that QuantumScape may just be the latest hyped-up battery group that will not deliver on its early promise. 

That has highlighted the perils of joining the rush into battery and EV stocks. Battery technology is much harder than it looks.

Delrahim: better late than never when it comes to reforming antitrust

Advocates for bold and radical reform often ponder: change from within or outside the system? 

The Trump administration’s outgoing antitrust boss Makan Delrahim indicated this week that change might be more likely to come without him at the helm of the Department of Justice’s competition watchdog. 

After four years overlooking the approval of deals, Delrahim declared on his way out that more should be done to curb the market power of large companies (particularly Big Tech) in a speech at Duke University, entitled: “A Whole New World: An Antitrust Entreaty for a Digital Age.” 

Delrahim’s time at the DoJ will probably be remembered more for his reluctance earlier in his tenure to approve AT&T’s acquisition of Time Warner, owner of CNN, to please his boss (who openly hated the news channel) rather than his tough enforcement record on mergers.

Makan Delrahim, outgoing US assistant attorney-general for the antitrust division of the Department of Justice © AP

When looking at things in detail it’s fair to say that dealmakers had little trouble getting transactions approved. Even mergers blocked by previous regulators, like T-Mobile’s acquisition of Sprint, managed to get the green light from Delrahim.

But Delrahim admitted in his Duke speech that over the years he “reassessed certain intellectual priors and reconsidered arguments that I once thought out of the question”.

Based on the lessons learnt, he made a few proposals that he hopes the Biden administration might put into action. You can read all of them here

The most significant one, though, could impact the likes of Facebook, Google and Amazon, which regularly buy emerging rivals that could hurt them in the future. 

“I propose that for firms with more than 50 per cent market share in any defined market, there should be a presumption that further acquisitions in that same market are anti-competitive,” said Delrahim. 

“The presumption should apply regardless of the size of target company, helping to address situations in which dominant firms engage in acquisitions of smaller firms to maintain and solidify their market power, not by superior business acumen, but by acquisition.”

His new perspectives on curbing the power of big companies to buy smaller rivals are best explained by the way the DoJ successfully blocked Visa’s $5.3bn takeover of fintech start-up Plaid

Why did it take him so long to speak out? Why didn’t he take firm action earlier? We might never know but Delrahim promised to help his successor from the outside “in any way that I can”.

Job moves 

  • Blackstone has hired Michael Hovey as a senior managing director to lead acquisitions and strategic partnerships for its insurance arm. He was previously a managing director and co-head of insurance investment banking at Morgan Stanley.

  • Onex has hired Wes Pringle as a managing director and head of portfolio operations within its private equity unit. He will join in April from Fortive, where he is senior vice-president.

  • Flint Global has hired Charlie Geffen, previously a senior partner at Ashurst and chair of the corporate practice of Gibson Dunn, as a senior adviser.

  • Robert Foster has joined Baird’s global investment banking business as a managing director. He joins from Jefferies where he headed consumer and retail investment banking in Europe.

Smart reads

Donald Trump spent his final stretches in the White House on Wednesday morning issuing a wave of 73 pardons and 70 commutations, keeping with the longstanding presidential tradition of employing clemency powers at the eleventh-hour.

The list includes a pardon for Steve Bannon, rappers Lil Wayne and Kodak Black, and big names in the business world, some of the most memorable DD is recounting in a special edition of smart reads:

  • Anthony Levandowski The engineer was one of Google’s best and brightest, paving the way for its self-driving-car unit. Until he left for Uber and was found guilty of what one judge called the “biggest trade secret crime I have ever seen”. He was pardoned by Trump after being sentenced to 18 months in prison in August. (The New Yorker)

  • Billy Walters The Sin City sports gambling legend was nailed in an insider-trading scheme said to have made him a $40m fortune. But his lucky streak is back, it seems, after receiving a commuted sentence. (Las Vegas Review-Journal

  • Elliott Broidy The Republican mega-donor who found himself embroiled in a scheme to pay off a former Playboy model with Trump’s former lawyer Michael Cohen, and was charged in connection with his lobbying efforts in the 1MDB corruption scandal, received a pardon. (Wall Street Journal)

News round-up

Jack Ma makes first public appearance since Ant’s cancelled IPO (FT + Lex)

Russian Gold Miner Nordgold aims to list in $5 billion London IPO (WSJ)

Brookfield, KKR said to eye $10 billion Aramco pipeline stake (Bloomberg)

In Trump, Stephen Schwarzman found a chance to burnish his legacy (NYT) 

How Volkswagen’s $50 billion plan to beat Tesla short-circuited (WSJ) 

Trafigura puts €1.5bn of own cash on line to cement Rosneft ties (FT) 

BA owner agrees cut-price deal of €500m for Air Europa (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to

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