Banks Appear Unlikely To Benefit From Trading Turnaround

Low client activities and less volatility across capital markets have hurt banks’ trading revenues in 2017 and there is hardly any chance of revival in the remaining few days of the year.

At the Goldman Sachs U.S. Financial Services Conference in New York, top executives of JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp. (NYSE:BAC) hinted at continued weakness in trading revenues. This is the third time this year that both the companies provided dismal outlook for trading revenues.

Marianne Lake, the chief financial officer at JPMorgan, stated that the company’s trading business so far this quarter was down nearly 15% year over year. Lake said “there haven’t been that many catalysts” and volatility remains "low across the spectrum."

Likewise, BofA CEO Brian Moynihan predicted the same decline for his company. Both executives cited difficult comparison to last year, when volatility was significantly high following the U.S. Presidential election results.

Notably, remarks by these executives echo similar comments made in November by Goldman Sachs (NYSE:GS) CFO Martin Chavez, who said “The market backdrop that has been in place since the beginning of the year has continued into the fourth quarter. Volatility continues to be low, and client activity continues to be subdued.”

This year, despite several political and geopolitical developments and hike in interest rates, which should have incited volatility, subdued inflation in the United States and marginal increase in long-term interest rates along with absence of specific catalysts have been a drag on volatility.

Nonetheless, this dismal operating backdrop has not hindered banks’ investment banking business. JPMorgan expects investment banking income to be up in high single digits range, while it is projected to rise in mid-single digits range for BofA.

Apart from these, both banks are expected to witness improvement in net interest income driven by easing margin pressure and loan growth. So, overall top-line growth is expected to continue.

Currently, JPMorgan, BofA and Goldman carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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