U.S. bank earnings to be hit by bond trading slump: analysts

Thu Jul 9, 2015 1:19am EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - Many Wall Street banks are expected to report underwhelming second-quarter results next week, after light bond market activity in the spring worsened into a downturn by June, analysts said.

Investor worries spanned the globe last quarter, ranging from fiscal woes in Greece to crashing stock markets in China, to concerns that the U.S. Federal Reserve will not be able to raise interest rates later this year.

As the concerns worsened with less certain outcomes, investors pulled back from markets to avoid getting burned, analysts said.

In the 13 days that passed between investor conferences in late May and early June, top Bank of America Corp executives changed their characterization of trading revenue from flat-to-down to simply down. Deutsche Bank analysts downgraded Goldman Sachs Group Inc in late June partly because of expected weakness in trading.

"Despite the fact that there was a lot of newsflow and headlines coming out, particularly surrounding Greece, this didn't translate into a pickup in activity," said Steven Chubak, an analyst who covers big banks for Nomura. "Because of the uncertainty, many people were on the sidelines in June."

Banks' fixed income, currencies and commodities (FICC) trading businesses were hurt the most, Chubak and other analysts said. Nomura forecasts an 8 percent revenue drop for that business across Wall Street, compared to the second quarter of 2014.

JPMorgan Chase & Co will be the first to report second-quarter earnings on Tuesday morning. Analysts expect JPMorgan to record $1.44 in profit per share, on average, down 1.4 percent from the same period a year earlier, according to Thomson Reuters I/B/E/S.

Analysts expect Goldman Sachs, which reports on Wednesday, to have earned $3.92 in profit per share, down 4.5 percent from the same period a year earlier. Morgan Stanley, which has a smaller bond-trading business and performed particularly poorly in the year-ago period, is expected to produce earnings of 74 cents per share, up 23 percent year-over-year. That bank reports earnings on Monday, July 20.   Continued...

A view of the exterior of the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015. REUTERS/Mike Segar