LONDON, June 1 (IFR) - JP Morgan and Bank of America Merrill Lynch warned trading revenues in the current quarter are set to fall at least 10% from a year ago as a lack of market volatility has slowed activity following the strong start to the year.
JP Morgan said its trading revenues were down about 15% and BAML said its sales and trading revenues were set to be down 10%-12% from a year ago. Both said that was against a robust second quarter a year ago, however.
“Quarter-to-date across our markets businesses, we are down about 15% year-on-year,” JP Morgan chief financial officer Marianne Lake said last week at a Deutsche Bank financial services conference in New York.
That would be a setback for banks after a strong first quarter, when capital markets revenues jumped by about a fifth compared with January-March 2016.
Lake said that rise was partly because the first quarter of 2016 had been weak and a stronger second quarter 2016 makes a tougher comparison. And she said this year was back to the more familiar pattern where the year starts well and then slows.
Revenues from fixed income trading had been weaker, but equities had been “a little better”, particularly in corporate derivatives and prime services, Lake said.
BAML Chairman and CEO Brian Moynihan offered a similar view on sales and trading.
“The second quarter will be down 10%, 11%, 12%, something like that,” Moynihan said at a Bernstein conference last week.
He said January-June revenues would still show a year-on-year rise for the first time in about five years, however. “We’ll be up 3%, 4% in revenue first half to first half,” Moynihan said.
Another positive was that expenses in the business would be flat this quarter, he said.
“It feels good, but it (revenue) is going to be down a bit from the second quarter last year just because that was the strongest quarter of the year,” Moynihan said.
The second-quarter slowdown has been blamed on a lack of market volatility or events to spark a surge in trading, especially compared to a year ago, when Britain voted in June to leave the European Union. Low interest rates and a more guarded view on when rates will rise have added to that.
Bankers said April was dead for trading desks and there was only a slight pick-up in May, leaving many hoping for June to pick up the slack.
Lake was wary of calling a turn. “If I look to June, I would say I don’t see any particular reason for that to change, particularly given the strength of our June last year,” she said.
“We feel like we’re actually doing pretty decently in a reasonably challenging environment,” she said. “There haven’t been that many idiosyncratic events, and we need a few more of them.”
The VIX index, which measures US equity market volatility, has traded below 12 points for much of April and May, an abnormally low level.
David Solomon, president and co-chief operating officer for Goldman Sachs, declined to estimate the bank’s second-quarter performance as it continues to “ebb and flow”, but he acknowledged the low volatility.
“Volatility, client activities, which were more subdued in the first quarter, have kind of, in these first two months, have continued in a comparable fashion in the second quarter,” Solomon said at the Deutsche Bank conference.
This year started well for banks, and revenues from fixed income, currency and commodities on average rose 20% across the top firms. Revenues from equities were flat and advisory and underwriting jumped 28% from a year ago, according to IFR estimates.
Capital markets revenues for the biggest 13 investment banks was US$49bn in the first quarter, up 20% from the first quarter of 2016, according to analysis firm Tricumen.
Tricumen estimated equity capital markets fees jumped 71% from a year ago, driven by a surge in IPOs in the US and Asia. Debt capital markets and securitisation fees rose 40%, driven by leveraged markets and the best ever quarter for US high grade.
In FICC, FX revenues dipped 5% and commodities revenues were down about 25%, but they were more than offset by a 36% rise in rates and a 54% jump in credit, Tricumen said. (This story will appear in the June 3 issue of IFR Magazine; Reporting by Steve Slater)