The latest earnings reports from Wall Street give a pretty good idea of what happened on trading desks during the violent market moves over the summer: Stock jockeys worked themselves up into a frenzy, while everyone else slowed down to rubber neck.
Equity markets revenue increased 9 percent to $1.4 billion at JPMorgan Chase and 12 percent at Bank of America. Meanwhile, revenue from the world of fixed income, currencies and commodities (otherwise known as FICC) slid 11 percent at both banks as, in the words of JPMorgan CFO Marianne Lake, some "clients were on the sidelines given the challenging market conditions."
At times when the equity market starts making people worry that it could be on its way to a level of approximately 0,000.00 (as happened in late August), it can have a bit of a paralyzing effect on all manner of other assorted financial activities. So when it’s time to swap war stories around the water cooler at the end of the quarter, it’s the stock traders who get to brag the most.
It shouldn’t be too surprising that equities were a standout as trading volumes jumped by 29 percent in the third quarter compared with the same period last year. The S&P 500 suffered a 6.9 percent loss in its worst retreat since 2011.
Both banks credited not only cash equity trading but derivatives, underscoring the frenzy in options markets amid the volatility.
The divergence of performance among the equities teams and the FICC teams puts a spotlight on the firms that have much more at stake from trading revenue.
It may bode well for Morgan Stanley when it releases results next week. The firm books 20 percent of revenue from equities, the highest percentage among its peer group, as Bloomberg Intelligence’s Alison Williams points out. FICC makes up only 12 percent of revenue at Morgan Stanley.
Goldman Sachs, which reports tomorrow, also gets a large amount of revenue from equities (19%) but even more (24%) from FICC.
Morgan Stanley could use some good news. The shares are down 16 percent this year, the most among the big investment banks and twice as much as Goldman’s. Both have gotten a bit cheaper since the stock-market turmoil over the summer, with Morgan Stanley trading at about 10 times forward 12-month earnings estimates and Goldman at 9.6 times -- among the lowest of the 25 diversified financial companies in the S&P 500.
Morgan Stanley’s earnings prospects are looking a little brighter, with analysts predicting double-digit percentage growth in adjusted EPS in 2016 and 2017 -- roughly twice the rate predicted for Goldman.
Maybe the equities desk will give Morgan Stanley something to boast about next week. Of course, how long those bragging rights will last is anyone’s guess. For all we know, the talk around the water cooler at the end of this quarter could be how boring the stock market was again.
(This column does not necessarily reflect the opinion of Bloomberg LP and its owners.)