Starting Points: Wall Street

Showing posts with label Wall Street. Show all posts

Apr 17, 2010

For Goldman Sachs, a Winning Bet Carries a Price - NYTimes.com

By LOUISE STORY and GRETCHEN MORGENSON

For Goldman Sachs, it was a relatively small transaction. But for the bank — and the rest of Wall Street — the stakes couldn’t be higher.

Accusations that Goldman defrauded customers who bought investments tied to risky subprime mortgages have only just begun to reverberate through the financial world.

The civil lawsuit filed against Goldman on Friday by the Securities and Exchange Commission seemed to confirm many Americans’ worst suspicions about Wall Street: that the game is rigged, the odds stacked in the banks’ favor. It is the first big case — but probably not the last, legal experts said — to delve into a Wall Street firm’s role in the mortgage fiasco.

The move against Goldman came at a particularly sensitive time for Wall Street. Washington policy makers are hotly debating a sweeping overhaul of the nation’s financial regulations, and the news could embolden those seeking to rein in the banks. President Obama on Saturday stepped up pressure for financial reform by accusing Republicans of “cynical and deceptive” attacks on the measure.

The S.E.C.’s action could also hit Wall Street where it really hurts: the wallet. It could prompt dozens of investor claims against Goldman and other Wall Street titans that devised and sold toxic mortgage investments.

And it raises new questions about Goldman, the bank at the center of more concentric circles of economic and political power than any other on Wall Street. Goldman — whose controversial success has leapt from the financial pages to the cover of Rolling Stone — has fiercely defended its actions before, during and after the financial crisis. On Friday, it called the S.E.C.’s accusations “unfounded.”

Wall Street played a complex and, at times, seemingly conflicted role in the mortgage meltdown. Goldman and others worked behind the scenes, bundling home loans into investments for sale to investors the world over. Even now, more than 18 months after Washington rescued the teetering financial system, no one knows for sure how much money was lost on those investments.

The public outcry against the bank bailouts was driven in part by suspicions that a heads-we-win, tails-you-lose ethos pervades the financial industry. To many, that Goldman and others are once again minting money — and paying big bonuses to their employees — is evidence that Wall Street got a sweet deal at taxpayers’ expense. The accusations against Goldman may only further those suspicions.

“The S.E.C. suit against Goldman, if proven true, will confirm to people their suspicions about the total selfishness of these financial institutions,” said Steve Fraser, a Wall Street historian and author of “Wall Street: America’s Dream Palace.” “There’s nothing more damaging than that. This is way beyond recklessness. This is way beyond incompetence. This is cynical, selfish exploiting.”

On Friday, Goldman’s stock took a beating, falling 13 percent and wiping out more than $10 billion of the company’s market value. It was a possible sign that investors fear that the S.E.C. complaint will damage Goldman’s reputation and its ability to keep its hands on so many sides of a trade — a practice that is immensely profitable for the firm.

It is unclear whether the S.E.C. can prevail against Goldman. The bank has long maintained that it puts its clients first and, in a letter in its latest annual report, reiterated that position. Goldman said that it never “bet against our clients” in its trades but rather was trying to hedge against other trading positions.

Still, Wall Street analysts said Goldman and other banks, having navigated the financial crisis, might now face a new kind of risk: angry investors. Most major Wall Street banks also created collateralized debt obligations, which are at the heart of the Goldman case. C.D.O.’s, which are essentially bundles of securities backed by mortgages or other debt securities, turned out to be among the most toxic investments ever devised.

“Any investor who bought these C.D.O.’s and lost a significant amount of money is probably looking at their investment and wanting to know: what were the details behind the sale?” said William Tanona, an analyst at Collins Stewart. “Will they contact the S.E.C. and say, ‘Here’s the transaction we participated in, and we’d love to know who is on the other side of it?’ ”

Among the investors were several European banks, the S.E.C. complaint said. The biggest victim was the Royal Bank of Scotland, which inherited a loss of $841 million after it took over the Dutch bank ABN Amro, which made the original investments in 2007. According to a person briefed on the matter, Royal Bank, now controlled by the British government, is studying the documents but is not yet ready to decide whether to take action to recoup some or all of the money from Goldman.

Goldman faces a dilemma in its response. Wall Street firms tend to settle cases like this one, but Goldman’s statement Friday indicated it intended to dig in its heels and fight, perhaps in part to discourage suits by investors. But that strategy could set it up for a drawn-out, messy and public battle.

The S.E.C. complaint named just one Goldman employee: Fabrice Tourre, a vice president in the bank’s mortgage operation who worked on the questionable transaction.

But securities lawyers say Mr. Tourre appears to be a small fish. Federal investigators may try to gain his cooperation and extend their investigation to other Goldman employees. On Friday Mr. Tourre’s lawyer did not provide a comment on the complaint.

A big question is how far up this might go. The S.E.C. said the deal in its complaint had been approved by a committee at Goldman called the Mortgage Capital Committee.

“It’s typical that they’d start with someone lower down on the chain and try to exert pressure on that person,” said Bradley D. Simon of Simon & Partners, a white-collar defense lawyer in New York. “Is it really conceivable that no one else was involved in this?”

As the housing market began to fracture in 2007, senior Goldman executives began overseeing the mortgage department closely, according to four former Goldman Sachs employees, who spoke on the condition of anonymity because of the sensitivity of the matter.

Senior executives routinely visited the unit. Among them were David A. Viniar, the chief financial officer; Gary D. Cohn, the president; and Pablo Salame, a sales and trading executive, these former employees said. Even Goldman’s chief executive, Lloyd C. Blankfein, got involved.

Top executives met routinely with Dan Sparks, the head of the mortgage trading unit, who retired in the spring of 2008. Managers instructed several traders to sell housing-related investments. Indeed, they urged Mr. Tourre and a colleague, Jonathan Egol, to place more bets against mortgage investments, the former employees said.

A Goldman spokesman did not reply to a request for comment on these executives’ roles. It is unclear if any of the top executives knew about all of Mr. Tourre’s actions.

Mr. Blankfein has already been questioned about the toxic vehicles Goldman devised and sold, even as the bank realized the housing market was in trouble.

Recent public statements made by Mr. Blankfein seem to conflict with the account laid out by the S.E.C.

In testimony before the Financial Crisis Inquiry Commission in January, for example, Mr. Blankfein described Goldman’s approach to dealing with its clients: “Of course, we have an obligation to fully disclose what an instrument is and to be honest in our dealings, but we are not managing somebody else’s money.”

But the S.E.C. complaint says Goldman misled investors who bought one of the bank’s so-called Abacus deals. The bank failed to tell them that the mortgage bonds that underpinned the investment had been selected by a prominent hedge fund manager who wanted to bet against the investment, the S.E.C. says. Those bonds were especially vulnerable, the commission says.

The deal cost investors just over $1 billion, a relatively small deal by Wall Street standards. At a conference in New York in November, Mr. Blankfein talked about the risks to the firm’s reputation that it faced as a result of the mortgage mania and ensuing credit crisis.

“Are we worried about our image and reputation, and what are we doing to fix it? The answer, of course, is we’re very concerned about this,” Mr. Blankfein said. He added: “People understand our bona fides who deal with us.”

Graham Bowley contributed reporting.

Sep 15, 2009

Institute for Policy Studies: America’s Bailout Barons

Image via Wikipedia

Download Executive Excess 2009

By Sarah Anderson, John Cavanagh, Chuck Collins, Sam Pizzigati

The 16th annual Institute for Policy Studies "Executive Excess" report exposes this year's windfalls for top financial bailout recipients.

Ten of the top 20 financial bailout firms have revealed the details of stock options pocketed in early 2009. Based on rising stock prices, the top five executives at each of these banks have enjoyed a combined increase in the value of their stock options of nearly $90 million, according to the report, the 16th in a series of annual "Executive Excess" reports.

"America's executive pay bubble remains un-popped," says Sarah Anderson, lead author on the Institute study. "And these outrageous rewards give executives an incentive to behave outrageously, putting the rest of us at risk."

Key Findings

The Bounty for Bailout Barons: From 2006 through 2008, the top five executives at the 20 banks that have accepted the most federal bailout dollars since the meltdown averaged $32 million each in personal compensation. One hundred average U.S. workers would have to labor over 1,000 years to make as much as these 100 executives made in three.

Layoff Leaders: Since January 1, 2008, the top 20 financial industry recipients of bailout aid have together laid off more than 160,000 employees. In 2008, the 20 CEOs at these firms each averaged $13.8 million, for a collective total of over a quarter-billion dollars in compensation.

Wall Street Pay Dwarfs Regulator Pay: These 20 CEOs averaged 85 times more pay than the regulators who direct the Securities and Exchange Commission and the Federal Deposit Insurance Corporation. These two agencies, many analysts agree, have largely lacked the experienced and committed staff they need to protect average Americans from financial industry recklessness.

"The lure of lucrative private sector jobs doesn't just siphon off talent from public service," says Sam Pizzigati, an IPS Associate Fellow and report co-author. "It also breeds corrosive and ever-present conflicts of interest: Why 'get tough,' as a regulator, on a firm that could be your future employer?"

Federal Response Falls Short: An eight-page table at the end of America's Bailout Barons tracks the fitful progress in Washington on various executive pay reforms. Several of these have strong potential to deflate the executive pay bubble.

The federal government, for instance, could give tax breaks and federal contracting preferences to companies that maintain a reasonable pay gap between their top executives and workers. Rep. Jan Schakowsky (D-Ill.), in her proposed Patriot Corporations Act (H.R. 1874), would extend these tax breaks and procurement bidding preferences only to those companies that compensate their executive at no more than 100 times the income of their lowest-paid workers.

A generation ago, typical big-time corporate CEOs seldom made more than 30 or 40 times what their workers took home. In 2008, the IPS report shows, top executives averaged 319 times more than average U.S. worker pay.

The bulk of the debate over executive pay reform has revolved around questions of corporate governance, such as the independence of compensation committees and the role of shareholders.

"Governance problems do need to be resolved," notes IPS Director John Cavanagh. "But unless we also address more fundamental questions - about the overall size of executive pay, about the gap between the rewards that executives and workers are receiving - the executive pay bubble will most likely continue to inflate."

"Public officials in Congress and the White House hold the pin that could pop the executive pay bubble," says IPS Senior Scholar Chuck Collins. "They have so far failed to use it."

Jul 31, 2009

Bankers' Bonuses Beat Earnings as Industry Imploded

By Tomoeh Murakami Tse
Washington Post Staff Writer
Friday, July 31, 2009

NEW YORK, July 30 -- The nation's nine largest banks handed out $32.6 billion in bonuses last year even as they ran up more than $81 billion in losses and accepted billions of dollars in emergency federal aid, New York Attorney General Andrew M. Cuomo says in a report released Thursday.

Cuomo's investigation into pay practices at Wall Street's largest firms found that nearly 4,800 executives and other employees were each awarded at least $1 million. Of those, more than 900 worked for Bank of America and Citigroup, which have been among the largest recipients of government bailout funds.

This latest report about Wall Street bonuses turned up the heat on lawmakers and regulators, who have been weighing how to rein in compensation practices that banking executives themselves admit contributed to the worst financial crisis in decades. The House is set to vote Friday on legislation that would give regulators authority to prohibit pay practices that they deem inappropriate and grant shareholders the right to cast non-binding votes on executive compensation.

Shortly after Cuomo released his findings, Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, announced a hearing to examine pay practices, particularly at companies rescued by the federal government.

"A few months ago, they were facing bankruptcy. Then, after being bailed out, they're giving huge bonuses," Towns said. "I think the American people need some answers. With the economy being the way it is, and people suffering . . . how do you still do that?"

Facing the prospect of greater government oversight, some of the biggest banks have been taking steps since late last year to restructure pay incentives as a way of keeping Washington at bay while avoiding some of the business practices that led to the financial sector's tremendous losses.

Several firms have adopted a clawback policy that allows them to reclaim bonuses if corporate or individual business decisions turn out to be costly or improper. Other firms have extended the number of years that employees have to wait before cashing in on stock awards. Still others are discussing ways to further link compensation to long-term performance.

But some prominent pay experts and investor groups question whether the measures go far enough or if any of the more ambitious proposals will ever be implemented.

"The details of design in many cases still fall short of what is necessary," said Lucian Bebchuk, a Harvard law professor who has met with Obama administration officials to discuss pay principles. "There is substantial distance we need to go before we have effective tying of pay with long-term results."

Lawmakers in Washington also are skeptical and are moving ahead with legislation that would tighten restrictions on pay.

"If I thought they were enough, why would we pass the bill?" said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who sponsored the legislation. He said the restrictions should be uniform across companies, adding that he doubted firms would be restructuring pay practices if Congress wasn't moving ahead with legislation.

The bill embodies broad compensation principles similar to those outlined last month by Treasury Secretary Timothy F. Geithner, and its adoption would represent a victory for the Obama administration. The Senate is expected to take up the measure after the August recess.

While some in Congress and the administration have expressed cautious optimism that some banks were taking steps in the right direction, Cuomo's findings did little to boost confidence.

"It's window dressing," Towns said. "It's all basically rhetoric. They're not doing it. When it comes down to final analysis, it's not happening."

According to Cuomo's report, Citigroup and Merrill Lynch each lost more than $27 billion last year but paid out $5.3 billion and $3.6 billion in bonuses, respectively. Together, they have received government bailout funds from the Troubled Assets Relief Program totaling $55 billion.

Three other firms -- Goldman Sachs, Morgan Stanley and J.P. Morgan Chase -- were faulted for each awarding bonuses that totaled much more than their respective 2008 earnings. Goldman made $2.3 billion and paid out $4.8 billion in bonuses. Morgan Stanley earned $1.7 billion and paid $4.5 billion in bonuses. J.P. Morgan Chase made $5.6 billion and paid $8.7 billion in bonuses, the report says. Those firms recently returned their government funds, a combined $45 billion.

The report, titled "No Rhyme or Reason: The 'Heads I Win, Tails You Lose' Bank Bonus Culture," looked at bonuses and earnings at the nine large banks that were the first to receive government funds last year under TARP. Cuomo says a review going back six years shows that pay at Wall Street firms has become "unmoored" from their financial performance.

"When the banks did well, their employees were paid well," he says in the report. "When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well."

As an example, Cuomo cited pay practices at Merrill Lynch, which he accused of abandoning any effort to link pay to performance. Instead the investment bank, dragged down early in the financial crisis by bad investment decisions, set bonuses based on what it expected competitors to award. Merrill's losses in 2007 and 2008 erased all of its earnings in the preceding four boom years, evidence that pay practices were based on short-term profits on risky bets that later evaporated, Cuomo said.

Representatives of Bank of America, which earlier this year acquired Merrill Lynch, declined to comment. Other banks named in the report also declined to comment on it or did not return messages.

Wall Street firms have begun taking some steps to try to ward off criticisms, which have rained in from President Obama on down. Late last year, for example, Goldman Sachs increased the holding period for restricted stock awards for all employees from three years to four. Meanwhile, Morgan Stanley introduced a clawback provision that would allow it to roll back a portion of year-end bonuses awarded to traders and other employees if they are deemed to have engaged in activities that prove detrimental to the company, such as triggering major losses or harming its reputation. The clawback can reach as far back as three years. Morgan Stanley's Swiss rivals, UBS and Credit Suisse, have adopted clawbacks.

Some experts who have studied pay practices are reserving judgment.

"They all depend upon implementation by directors," said Stephen M. Davis, a fellow at Yale University's center for corporate governance. "And do we have the right directors installed at these companies? Are they sufficiently independent to put these practices into tough practice? Or will they be more lenient as time goes on?"

Goldman Sachs said it has had a policy that allows it to claw back bonuses of employees who cause significant harm to the firm. But a company official declined to say whether the clawback has ever been triggered.

Among the more hotly debated changes in pay practices are plans to shift compensation from bonuses into higher salaries. Morgan Stanley, Citigroup and J.P. Morgan Chase, along with several foreign competitors, all have carried out or informed employees of plans to increase salaries for many of them. The banks say these raises will not increase total annual compensation. Putting less emphasis on bonuses, some banks argue, would discourage excessive risk-taking. Some executives, however, acknowledged that they are hiking salaries for competitive reasons after rivals awarded pay raises to employees.

Nell Minow, a co-founder of the Corporate Library, said these steps run counter to the efforts banks should be making to tie pay more closely to performance. "Whether you're awarding new stock options to make up for underwater options or raising cash compensation to compensate for more risk-based bonuses, all of that completely undermines the legitimacy of any of the reform efforts," she said.

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/30/AR2009073001581.html

Jul 20, 2009

Some Fear N.Y. Fed Too Heavily Influenced by Wall Street Ideology

By Neil Irwin
Washington Post Staff Writer
Monday, July 20, 2009

NEW YORK -- The low-slung cubicles wrap around the ninth floor of a building three blocks from Wall Street, each manned by a young staffer staring at flashing numbers on a flat-screen computer monitor and working the phones to gather the latest chatter from financial markets around the world.

It could be any investment bank or hedge fund. Instead, it is the markets group of the Federal Reserve Bank of New York, which has been on the front lines of the government's response to the financial crisis. Federal Reserve and Treasury Department officials make the major decisions, but the New York Fed executes them.

The information gathered there provides crucial insights into the financial world for top policymakers. But the bank is so close to Wall Street -- physically, culturally and intellectually -- that some economic experts worry that the New York Fed puts the interests of the financial industry ahead of those of ordinary Americans.

"The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street," said Simon Johnson, an economist at MIT. "I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively."

Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country's financial system or to the risks associated with bailing out financial firms -- for instance, the chance that banks will be encouraged to take more unwise gambles. These experts worry that the New York Fed has adopted the mindset of a trading floor: well attuned to ripples in financial markets but not to long-term trends and dangers.

Last month, for instance, Wall Street bond traders wanted the central bank to ramp up its purchase of Treasury bonds, which would help the traders by driving up prices. But Fed officials in Washington and around the country concluded that such a move would be counterproductive in the longer run, in contrast to some New York Fed staffers, whose views more closely mirrored those on Wall Street.

New York Fed employees "play a very valuable role, day in, day out, with detailed contacts with the big financial firms," said William Poole, a former president of the Federal Reserve Bank of St. Louis who is now at the Cato Institute. "What I think is missing is a longer-run perspective. They tend to be sort of short-term in their outlook, which is true of a lot of the financial firms. Traders have a horizon of a few hours or a few weeks, at most."

The New York Fed's home is a fortresslike building, with bars securing the windows on lower floors. Its main lobby resembles a Gothic cathedral: dim, quiet, with stone walls, as if to inspire a mix of fear and awe.

Like the other 11 regional Federal Reserve banks, the New York Fed is a curious mix of public and private, part of a system Congress created in 1913 to avoid concentrated power in Washington or New York alone. Its board of directors is composed of bankers, businesspeople and community leaders, who select the bank president with approval from Fed governors in Washington. Banks in New York, Connecticut and parts of New Jersey own shares in the New York Fed, though its profits are returned to the U.S. Treasury.

The man in charge is a soft-spoken economist named William C. Dudley, who took over as president in January, replacing Timothy F. Geithner when he became Treasury secretary.

With a proclivity for button-down Oxford shirts and rumpled suits, Dudley does not fit the mold of a Wall Street executive. He has won fans across the Federal Reserve System for a collaborative style, as well as a talent for explaining complicated problems in the financial world and drawing up solutions to them.

It is his résumé that alarms some critics, who see an example of a too-cozy relationship between financial firms and their lead regulator. One of several bank officials who have worked in the private sector, Dudley was at Goldman Sachs for two decades, including 10 years as chief economist, before joining the New York Fed in 2007.

The bank's board of directors, which selected Dudley, includes such corporate titans as Jamie Dimon, the head of J.P. Morgan Chase, and Jeffrey Immelt, General Electric's chief. Richard Fuld, then the chief executive of Lehman Brothers, resigned from the Fed just days before his firm went under. Stephen Friedman, who sat on Goldman's board, resigned as chairman of the New York Fed board earlier this year after controversy arose over his purchase of Goldman stock while at the Fed.

"I don't think they're consciously doing things to tilt the playing field to Goldman Sachs and the other major banks," said Dean Baker, co-director of the Center for Economic and Policy Research. "But when you work at a place, you tend to internalize their views, and that is going to color your policies. It's not that they're being deliberately corrupt; it's that they come to incorporate the interests of major banks in their views."

Dudley argues that he has been willing to take on large banks repeatedly, especially with stress tests earlier this year that many viewed as onerous and which required some banks to raise more capital.

For their part, senior Fed officials in Washington say the experience Dudley and some of his colleagues have in the private sector has proved invaluable in helping them understand how markets are failing.

"He has been the right person at the right place at the right time," said Donald L. Kohn, vice chairman of the Federal Reserve System Board of Governors.

On the ninth floor, the first employees show up at 4 a.m. and hit the phones to collect the latest on overnight trading in Asia and Europe.

The workers on the front lines are "trader analysts." Many of them are around age 30, with master's degrees in international affairs or public policy from schools such as Johns Hopkins and Columbia. Some stay at the bank for decades, rising through the ranks; others go to Wall Street firms within a few years (some of those converts have looked to return to the Fed lately as investment banks have shed jobs by the thousands).

The staff, though paid much less than Wall Street workers, is well compensated by government standards. The 289 bank officers earned an average of $204,000 in 2007 -- more than Cabinet secretaries.

"They're the eyes and ears of the Federal Reserve in financial markets, and they wouldn't be doing their jobs if they weren't sensitive to what's occurring in that world," Kohn said. Then it is up to the board and the Fed's policymaking committee "to take that information, weigh it along with all the other information we get and set policy."

This intimacy with the firms they regulate can give Fed officials crucial intelligence. At the height of the financial crisis in September, staffers learned from their market contacts that Wall Street's two largest investment banks, Goldman Sachs and Morgan Stanley, were in mortal danger because their trading partners were so quickly losing faith in them, according to an update on the day's market activity by the New York Fed staff obtained by The Washington Post. Four days later, the central bank brought the two firms under the Fed's protective umbrella by agreeing to make them "bank holding companies."

But in allowing Goldman and Morgan to convert themselves to bank holding companies that received access to greater federal aid, Fed officials exempted them from the usual requirements, potentially putting taxpayer money at risk. (Since then, the firms' fortunes have improved enough that the government has incurred no losses.)

In responding to the financial crisis, the New York Fed has designed many of its programs to try to take advantage of some of the same business practices that contributed to the crisis.

Last fall, Fed staffers in New York and Washington began developing ideas to address paralysis in the markets for credit card loans, auto loans and other forms of consumer debt.

In Washington, Fed staffers wanted the central bank to hire a small number of firms to purchase the securities backed by these loans, thus injecting fresh credit into the market. But New York Fed staffers thought it better to let any investor put up money, matched with a loan from the Fed, to buy the securities. They argued that this approach would restart private markets more effectively and could be deployed faster. The downside: The New York Fed's strategy could allow private investors to earn huge returns while the government limited their losses.

Federal Reserve Chairman Ben S. Bernanke and other top Fed officials sided with New York.

The New York Fed, in scrambling to save the financial industry, has even taken a page out of the industry playbook, adopting a trick known as "special purpose vehicles." These entities, as used by Citigroup and other banks, contributed to the financial meltdown. But the Fed turned to similar entities when it bumped up against legal restrictions on its ability to buy risky assets. When the central bank decided to rescue Bear Stearns and, later, American International Group, New York Fed lawyers suggested creating separate limited liability corporations to buy the assets. The Fed then lent money to these new entities.

Dudley said the Fed has made such moves to support the overall economy, helping to keep a deep recession from getting much worse. When programs have helped individual firms, they have done so only to prevent catastrophic damage to the broader U.S. economy.

"Nobody here is trying to do anything but support the economy and support market functioning," he said in an interview. "We are worried about the stability of the system, not any individual institution."

Jul 17, 2009

JPMorgan’s Profit Soars Despite Downturn

By GRAHAM BOWLEY

A new order is emerging on Wall Street after the worst crisis since the Great Depression — one in which just a couple of victors are starting to tower over the handful of financial titans that used to dominate the industry.

On Thursday, JPMorgan Chase became the latest big bank to announce stellar second-quarter earnings. Its $2.7 billion profit, after record gains for Goldman Sachs, underscores how the government’s effort to halt a collapse has also set the stage for a narrowing concentration of financial power.

“One theme here is that Goldman Sachs and JPMorgan really have emerged as the winners, as the last of the survivors,” said Robert Reich, a professor at the University of California, Berkeley, who was secretary of labor in the Clinton administration.

Both banks now stand astride post-bailout Wall Street, having benefited from billions of dollars in taxpayer support and cheap government financing to climb over banks that continue to struggle. They are capitalizing on the turmoil in financial markets and their rivals’ weakness to pull in billions in trading profits.

For the most part, the worst of the financial crisis seems to be over. Yet other large banks, including Citigroup and Bank of America, are still struggling to return to health. Both are expected to report a more profitable quarter on Friday, but a spate of management changes and looming losses from credit cards and commercial real estate have thwarted a stronger recovery.

And then there are the legions of regional and small banks that are falling in greater numbers across the country. While many have racked up large losses, they stand to bleed more red ink if the recession wears on. Fifty-three have failed this year, and the Federal Deposit Insurance Corporation is girding for scores to follow.

Uncertainties over the economy mean that Goldman and JPMorgan may be enjoying a fragile dominance, industry experts said. JPMorgan reported big declines in its consumer business on Thursday, and it has set aside more than $30 billion to cover future losses from surging credit card charge-offs and mortgage and home equity losses.

“Nobody is through this until unemployment turns around,” said Moshe Orenbuch, a Credit Suisse banking analyst.

And if regulation being considered in Washington is passed, banks would face new limits on the amount of their own capital they may trade. That could limit the profits that banks like Goldman and JPMorgan make from their trading businesses, and level the playing field, experts say.

Other former Wall Street stars like Morgan Stanley, which was hurt more by the crisis and has avoided taking big risks in the new era, may also rebound and begin to take on old rivals.

But for now, Goldman Sachs and JPMorgan are surging. “The stronger players are positioned to take advantage of the crisis and they will dominate clearly in the near term,” said James Reichbach, the head of Deloitte’s United States financial practice.

JPMorgan’s renewed strength, like Goldman’s, comes as it vaults ahead of longtime rivals, especially in investment banking, including bond and equity trading, and underwriting debt to help companies issue shares and bonds. Traders took advantage of big market swings and less competition to post big gains in fixed-income and equities.

Michael J. Cavanagh, the chief financial officer at JPMorgan, said its profit and fees from this business were “a record for us in a quarter and a record for anybody at any firm in any quarter.” The bank, he added, was “so very proud of those results.”

It has also profited from the demise of weaker banks to enlarge its market share in mortgages and retail banking. On Tuesday, as the CIT Group, a lender to many small businesses, negotiated with the government to avoid collapse, JPMorgan signaled that it was watching.

“It would be an opportunity for us in these states if CIT was unable to continue lending to borrowers,” Tom Kelly, a spokesman at Chase, was quoted by Dow Jones Newswires as saying.

And revenue from the retail bank Washington Mutual, which JPMorgan acquired last fall, is starting to help earnings. Morgan is also profiting from its government-assisted purchase of Bear Stearns last year. JPMorgan is now No. 1 globally in equity and debt capital markets, according to Dealogic.

Amid the surge, Jamie Dimon, JPMorgan’s chief executive, has cemented his status as one of America’s most powerful and outspoken bankers. He has vocally distanced himself from the government’s financial support, calling the $25 billion in taxpayer money the bank received in December a “scarlet letter” and pushing with Goldman Sachs, Morgan Stanley and others to repay the money swiftly. Those three banks repaid the money last month.

Yet JPMorgan’s transformation into one of the industry’s strongest players is underpinned by the shelter it received from the government: The bank used the money as a cushion until it was able to raise new capital. “There is no doubt all of us benefited from the government help — all of us,” said a senior executive at another Wall Street bank.

A spokesman for JPMorgan said the bank accepted aid at the request of the government but would not comment beyond that.

Few banks have undergone such a turnaround. Only a few years ago, JPMorgan was struggling after years of poor management and a failure to digest a series of big acquisitions. But under Mr. Dimon, it cut costs and strengthened its balance sheet.

The payoff began last year. With the industry teetering on the verge of collapse, JPMorgan snapped up Bear Stearns in March 2008 and Washington Mutual last fall in two government-assisted transactions. Clients say that its growing dominance has given it more leverage to charge for lending and other services.

After aggressively lobbying to repay its taxpayer money, Mr. Dimon has also been driving a hard bargain over the repurchase of warrants the government received from the bank last autumn in exchange for taxpayer support. JPMorgan is now planning to let the Treasury Department auction off the warrants to private investors after the two sides failed to agree on a price.

Mr. Dimon is also gearing up for a series of battles in Washington. One is over tighter regulations for derivatives, a business where the bank generates lucrative fees as one of the industry’s largest players.

Another is the creation of a new consumer protection agency, which could threaten the profitability of the bank’s mortgage and credit card businesses if it introduces tougher regulations.

JPMorgan’s stock has risen 20 percent since early March. It closed Thursday at $35.76.

Eric Dash and David Jolly contributed reporting.