Bond trading stings Goldman, Citi in fourth quarter

Thu Jan 16, 2014 4:52pm EST
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By Lauren Tara LaCapra and David Henry

(Reuters) - Goldman Sachs Group Inc (GS.N: Quote) and Citigroup Inc (C.N: Quote) suffered a steep drop in bond trading revenue in the fourth quarter, a stinging blow for two banks long seen as stalwarts of fixed income markets.

The two banks performed worse in fixed income than rivals JPMorgan Chase & Co (JPM.N: Quote) and Bank of America Corp, (BAC.N: Quote) showing that even as bond market trading volume suffers from falling prices, some banks will endure more pain than others.

"You have to be nimble to trade the debt markets these days. If you make a bad bet, it will show up in results, and profits will be harder to earn in 2014," said Matt McCormick, a portfolio manager and banking analyst at Bahl & Gaynor Investment Counsel, which manages about $11 billion.

Goldman's profit fell 21 percent, as revenue from bond trading dropped 11 percent after adjusting for an accounting charge, it reported on Thursday. The bank's shares closed down 2 percent at $175.17.

Citigroup, which also reported on Thursday, said bond trading revenue slid 15 percent in the fourth quarter to $2.33 billion in what it called a "challenging trading environment." Its shares fell 4.3 percent to $52.60.

Trading results for the two banks contrasted with JPMorgan Chase & Co's (JPM.N: Quote), whose bond trading revenue rose 1 percent, and Bank of America Corp's (BAC.N: Quote), where it jumped 16 percent.

To be sure, a bank's declining bond trading revenue can be a sign of discipline if markets are mispricing assets.

When an analyst on a Goldman Sachs conference call asked about other banks evidently gaining ground in bond trading, Chief Financial Officer Harvey Schwartz said, "(W)e're always going to prioritize the risk management over things like market share."   Continued...

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid