Banks' Bond-Trading Boom to End This Quarter, JPMorgan Says

Updated on
  • Fixed-income revenue to decline 5%, equities to slide 6%: note
  • Some of biggest banks have relied on FICC to drive earnings

Revenue at the world’s biggest investment banks is likely to drop in the second quarter of this year as a rebound in fixed-income trading comes to an end, JPMorgan Chase & Co. analysts wrote.

Total revenue from investment banking and trading at five of the world’s biggest investment banks will probably fall 2 percent to about $18.1 billion, driven by a 5 percent drop in fixed-income trading and a 6 percent slide in equities, analysts led by Kian Abouhossein wrote in a note to clients Tuesday. Barclays Plc will probably post the biggest drop among the five banks, while Morgan Stanley is likely to report a gain, according to the note.

Some of the world’s biggest banks have relied on a rebound in fixed-income trading to drive results over the past year as clients moved to make more wagers on corporate bonds and the direction of interest rates. A decline in bond-trading could compound the challenges already facing some European lenders that are pushing through overhauls, from Deutsche Bank AG to Credit Suisse Group AG.

A drop in fixed-income trading revenue would break a streak of four straight quarters with year-over-year increases in that business, according to Bloomberg Intelligence. The rebound followed six consecutive quarters of declines.

Issuance of rates products may fall 16 percent from last year, Abouhossein wrote. Trading volumes in high-yield debt are on track to decline and issuance of securitized products is likely to slump, he estimated.

Read more: Gadfly on how bond markets have hit a ‘trading speed bump’

Investors pulled back in April from some of the riskier fixed-income securities, which are often the most lucrative for bank traders. The average daily trading volume of U.S. corporate debt fell almost 10 percent from a year earlier to about $28.5 billion while trading in mortgage-backed securities without government guarantees fell 34 percent to $2.3 billion, according to data published by the Securities Industry and Financial Markets Association. U.S. Treasury volume climbed almost 12 percent to $495 billion, the data show.

Barclays’s revenue from bond-trading could decline 13 percent, Abouhossein wrote. The London-based lender, led by Chief Executive Officer Jes Staley, reported a 14 percent decline from the same business in the first quarter. Deutsche Bank’s fixed-income sales may slide 3 percent, and UBS Group AG is expect to post a 15 percent decline.

Goldman Sachs Group Inc.’s bond-trading revenue could slide 10 percent to $1.7 billion. The New York-based lender last month posted its worst first-quarter result from that business in at least a decade as traders got burned by souring debts tied to a coal-mining giant and struggling mall retailers, as well as wagers linked to the U.S. dollar.

(Adds volume data in the fifth paragraph.)
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