Wall Street rates and forex traders save a quarter on rising earnings
(Bloomberg) – Rates and currency traders just gave Wall Street trading desks their best third quarter ever.
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Fixed-income trading revenue for the five largest U.S. banks jumped 22% to $15.8 billion in the period, beating analysts’ estimates. That, combined with a $10 billion stock haul, gave the companies their best third quarter for the company on record.
The better-than-expected results were largely fueled by a better performance of the desks dedicated to the purchase and sale of interest rate and foreign exchange products. These asset classes have seen an increase in volatility as the Federal Reserve embarked on an aggressive plan to hike interest rates to temper inflation in recent months.
“Inflation, lingering geopolitical tensions and changing central bank monetary policies around the world continue to drive volatility,” said Alastair Borthwick, chief financial officer of Bank of America Corp., which recorded zero days. loss of business during the quarter. “As a result, it was another quarter that favored macro trading.”
The Fed’s quest to quell rising prices has also helped push up net interest income, or revenue collected on loan repayments minus what depositors are paid. Taken together, that helped boost Wall Street’s revenue at a time when accounting rules required many of the nation’s biggest banks to build more reserves for potential loan losses, moves that ultimately squeezed profits.
The Fed’s decisions did not make life easier for all traders: desks dealing with corporate bonds and securitized products saw their volumes fall as they struggled against widening spreads. The world’s largest banks are expected to earn $8.3 billion this year from credit trading, the lowest since at least 2012, according to data from Coalition Greenwich.
At Citigroup Inc., the only major Wall Street bank whose bond results beat analysts’ expectations, executives lamented that a 39% decline in revenue for its spread product traders thwarted strength in bond trading. corporate rates and currencies. Revenue for the quarter was little changed from the prior year.
“In fixed income, we matched last year’s particularly strong performance thanks to our long-standing strength in FX, offsetting a weaker quarter in spread products,” it said on Friday. to analysts Director General Jane Fraser.
At Morgan Stanley and Goldman Sachs Group Inc., trading results helped counter falling fees the two banks collect from trading and underwriting. On Wall Street, investment banking fees plunged more than 50% to $6.4 billion, the worst third-quarter performance since 2012.
“Strength in fixed income and equities offset subdued activity in investment banking,” Sharon Yeshaya, chief financial officer of Morgan Stanley, told analysts on Friday. “Inflationary pressure as well as central and fiscal bank activity drove up volatility.”
JPMorgan Chase & Co. said its traders had their best third quarter on record, touting strength in currencies, emerging markets and rates trading. By comparison, in the firm’s investment banking division, fees fell 47% from a record high in the third quarter of last year.
“In times of uncertainty, clients look to us for our strength, scale and consistency,” company president Daniel Pinto said in a note to staff.
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