U.S. Banks Gain Only in First Quarter
Big U.S. banks performed well in trading during the first quarter as the COVID-19 pandemic caused great volatility. But those gains will likely be obscured by declines in other businesses and a stark outlook for this year’s stocks.
Trading revenue could be anywhere up from 8% to 20%. That’s when the big banks of Wall Street report results this week. They are JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Goldman Sachs Group Inc, and Morgan Stanley.
From a sixth bank, Chris Kotowski of Oppenheimer & Co favors banks with heavy exposure to trading. He is betting they will fare better than those with large lending businesses.
Bread-and-butter businesses that take in, lend, process and manage money for individuals and companies are struggling. Shifting updates about COVID-19 and government responses during the first quarter created volatility that made trading businesses to perform well.
The coronavirus has infected hundreds of thousands of people in the U.S. alone and has shut down businesses. The pandemic has set the stage for a global recession.
Stock markets plunged and soared day-to-day in the most volatile way in the last decade. Bond markets reacted to the Fed’s cutting of interest rates and pouring trillions of dollars into financial markets.
Dark Optimism Reflects U.S. Banks Today
Teams handling stocks, Treasury bonds, and foreign-exchange swaps likely did better than those in corporate credit where it was stressful.
Average daily volumes on Tradeweb Markets Inc were up 39% in the quarter from a year earlier. But activity began decreasing by late March, and few expect it to return as the year goes on.
Evercore ISI analyst Glenn Schorr said good temporary news for the U.S banks is trading was really good in 1Q.
The last time Wall Street banks experienced a similar dynamic was the first quarter of 2009. Anxiety was that banks were in serious trouble, only to learn that government stimulus programs created a trading boon. But today’s coronavirus volatility may turn out to be quite different, analysts said.
U.S. banks have dramatically restructured their trading businesses since then. Bursts of stock trading activity have become much more fleeting, even when they are extreme.
Morgan Stanley analyst Betsy Graseck said if we look back to, like, 2Q ’18, we had that sharp market correction. It had taken several quarters in a good economy for that trading activity to come back. With this economy, it’s going to take a little bit longer, she added.
