Goldman Sachs Group Inc. and JPMorgan Chase & Co. are among Wall Street banks that fail to give investors enough data about trading revenue even as they grapple with new capital and risk-taking rules, Fitch Ratings said.
Investors and counterparties need “a more granular and detailed presentation” of those revenues as the financial firms contend with the new regulations, including limits on proprietary trading, Fitch analysts said today in a report.
“Banks report the largest components of capital-markets revenues only in a very general fashion,” Fitch’s Joseph Scott and Bill Warlick wrote. “U.S. banks’ public disclosure of capital markets revenue is insufficient to allow investors and counterparties to make a proper assessment of the impact upcoming regulatory changes will have on firms’ future profitability, capital adequacy and competitive position.”
Wall Street faces an industrywide revenue slump as regulators force banks to set aside more capital under new Basel requirements and as the Volcker rule, a provision of the Dodd-Frank Act, restricts them from making risky trades with their own cash. The rules probably will dictate what kinds of products banks can trade, especially in fixed-income, currencies and commodities, or FICC, which provides as much 60 percent of revenue from capital markets, the Fitch analysts wrote.
The biggest U.S. banks, including Goldman Sachs, JPMorgan, Citigroup Inc. and Morgan Stanley, all based in New York, and Charlotte, North Carolina-based Bank of America Corp., rarely disclose how much revenue they derive from FICC products, according to Fitch.
“We believe some areas, such as rates and currencies, will likely receive more favorable treatment under Basel III and Volcker,” the analysts wrote, referring to rules approved by the Basel Committee on Banking Supervision. “Other segments, however, may be hurt. These could include mortgages and high-yield corporate bond and loan trading, as well as complex structured transactions.”
Bank investors and counterparties would “benefit greatly” from more detailed FICC disclosures, they wrote.