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Big Banks See Slump in Q3 Trading Revenues on Y/Y Basis

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On Tuesday, at the Barclays Plc Investors Conference in New York, top executives of JPMorgan Chase & Co. (JPM - Free Report) , Bank of America Corp. (BAC - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) hinted at weakness in third-quarter trading revenues. Banks expect low volatility in equity and bonds markets to impact trading activity.

Top Executives Signal a Gloomy Q3

At the conference, Jamie Dimon — the chief executive officer at JPMorgan Chase & Co. — stated that the company’s trading income is projected to be down roughly 20% year over year in the third quarter. Specifically, lower fixed income trading is expected to weigh on the overall trading income. Notably, if these expectations are in line, this would be the worst September-quarter results for the bank since 2011. Moreover, it exceeds the decline projected by other big banks at the conference.

In the conference, Bank of America Corporation’s chief financial officer — Paul Donofrio — warned investors that the bank’s earnings in the third quarter will be hit by decline in trading income (down around 15% from the prior-year quarter).

Further, Goldman’s co-president Harvey Schwartz signaled a similar view, though he did not mention any figure for the trading results. “It’s a pretty challenging environment for us” in fixed income and the period “felt a lot like the first and second quarter,” he noted.

At the same conference, on Monday, Citigroup Inc.’s (C - Free Report) chief financial officer, John Gerspach, also announced the company’s latest outlook for the September quarter. The bank expects third-quarter 2017 trading revenues to fall 15% year over year, marred by low volatility in markets.

Volatility remains “somewhat subdued,” noted Gerspach. “For the whole third quarter you really don’t know what happens until you figure out what the operating environment is in September,” he further added.

Conclusion

Trading results in 2016 had improved on elevated client activity levels, as investors bet on prospects of the U.S. election as well as the Brexit vote. Nevertheless, the last three weeks of the current quarter are anticipated to report a turnaround.

An improving economic backdrop and optimism surrounding the interest-rate hike are supporting banks’ financials. Though banks will likely remain under pressure due to lackluster fixed-income trading activities in the near term, the cost containment efforts are noticeable.

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

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