For big U.S. banks, June's trading bonanza may not persist: executives

Fri Jul 18, 2014 4:25pm EDT
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By Peter Rudegeair

NEW YORK (Reuters) - U.S. banks posted stronger-than-expected trading results in the second quarter due to surprisingly active markets in June, but bank executives stopped short of saying the good times would continue.

Analysts expected banks' bond trading revenue to have fallen somewhere around 20 percent in the second quarter from the same period last year. But the drop in aggregate for Bank of America Corp, Citigroup Inc, Goldman Sachs Group Inc, JPMorgan Chase & Co and Morgan Stanley for fixed-income trading was closer to about 10 percent.

Investors and analysts are spending a good deal of time watching banks' trading businesses because these units have a big impact on their earnings.

April and May were slow months, with JPMorgan and Citigroup both saying in May that their second quarter trading revenue would drop. But June was a more active month. The European Central Bank cut interest rates and announced other initiatives to further loosen monetary policy. Ukraine was relatively calm, and U.S. jobs grew at a healthy pace, all spurring shifts in the outlook for interest rates and the broader global economy.

The summer months of July and August tend to be a slower season compared to other quarters.

JPMorgan Chief Financial Officer Marianne Lake said on a Tuesday conference call with analysts that executives had seen "no catalyst that would lead us to believe that (the pace of trading) would, necessarily continue. And as we have moved into July, it so far has been our experience that it has not continued at that level."

In recent days, trading volume has picked up, as fighting has intensified in the Gaza strip and a Malaysian airliner was downed in Ukraine. With these tensions ratcheting higher, investors bought Treasuries on Thursday and Friday.

But even if macroeconomic changes spur more activity, there are longer-term pressures on bond trading that will likely prevent volume from rising too much, executives said.   Continued...

A Bank of America sign is pictured in Encinitas, California in this file photo taken January 14, 2014.  REUTERS/Mike Blake/Files