As reported in a Bloomberg article this morning, U.S. banks are experiencing a slow down in trading revenues due to fewer idiosyncratic events in the first and second quarters of 2017. At an investor conference Wednesday, JPMorgan Chase & Co’s Chief Financial Officer, Marianne Lake, attributed the slow down in trading revenues to a decline in fixed income speculation.
“There haven’t been that many idiosyncratic events, and we need a few more of them,” Lake said. “As a sweeping generalization, low rates, a more cautious outlook on rates, and low volatility have led to low client flows and a generally quiet, subdued and challenging trading environment.”
At JPMorgan, trading revenue is down roughly 15% year-over-year (yoy) for the months of April and May. Likewise, Bank of America is experiencing second quarter revenue declines between 10-12% yoy in its trading business.
Trading Revenue Is an Issue at Many Banks
It appears revenue declines from trading activity is affecting all of the investment banks, albeit at varying levels of severity. The jewel of Wall Street, Goldman Sachs Group ($GS), has also acknowledged subdued trading revenues for the first half of 2017.
At the same conference Wednesday, David Solomon, Co-President of Goldman, reportedly confirmed:
“Client activities, which were more subdued in the first quarter, have in these first two months, continued in a comparable fashion in the second quarter.”
“People have cash, but no conviction.” -Lake
Marianne Lake, JPMorgan’s CFO, also pointed out that conflicting economic data could be to blame for the slump in trading activity. Specifically, unemployment and inflation data are at odds with each other– adding uncertainty to future rates.
Additionally, trading revenues reached record highs for several investment banks in the latter three quarters of 2016. The current slump in trading revenue is likely jointly caused by the overall market cycle and a lack of idiosyncratic events related to interest rates.