Wall Street banks are expected to report their weakest trading results of the year next week, signaling the end of a record-breaking streak. Analysts forecast the five largest US investment banks — JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup and Bank of America — will collectively generate about $38bn in equities and fixed income trading revenues for the third quarter. While still 13 per cent higher than a year ago, this marks a sharp decline from the record $47bn in the second quarter and a 12 per cent drop from the first quarter.
The slowdown is attributed to a pullback in financing trades in Asia and a deceleration in fixed income, currencies and commodities trading. The third quarter is typically slower due to summer holidays, but the projected 20 per cent decline is unusually steep compared to the typical 6 per cent seasonal drop. Despite the slowdown, it is still expected to be the best third quarter on record.
Total profits for the five banks are forecast at $44bn, down 20 per cent from the second quarter. Investment banking revenues are also expected to follow a similar trend, with analysts anticipating a more cautious outlook on mergers, acquisitions and IPOs. Bank stocks have underperformed recently due to concerns over fading data centre financing, the impact of AI on customer loyalty, and rising interest rates affecting securities portfolios.
Analysts expect unrealised losses on these portfolios as yields on 10-year Treasuries increase, though these will not impact bottom-line profits. However, the paper markdowns could affect banks' capital positions, a concern that emerged during the 2023 regional banking crisis. Banks have shifted towards short-term debt to reduce exposure to rate fluctuations, but investors remain wary.
Source: Financial Times Companies · Summarized by HeadlinesBriefing