Trading gains for big U.S. banks may not last past first
quarter
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[April 13, 2020] By
Imani Moise and David Henry
NEW YORK (Reuters) - Big U.S. banks made a
pretty penny in trading during the first quarter as the coronavirus
pandemic caused wild market swings, analysts said, but those gains will
likely be overshadowed by declines in other businesses and a bleak
outlook for the rest of the year.
Trading revenue could be up from 8% to 20% when the five big Wall Street
banks – JPMorgan Chase & Co <JPM.N>, Bank of America Corp <BAC.N>,
Citigroup Inc <C.N>, Goldman Sachs Group Inc <GS.N> and Morgan Stanley <MS.N>
– report results this week, according to five estimates gathered by
Reuters.
A note of caution was sounded by a sixth, Chris Kotowski of Oppenheimer
& Co, who penciled in double-digit revenue declines for some banks
because "these kinds of markets almost always lead to some trading
inventory losses."

Nonetheless, Kotowski favors banks with heavy exposure to trading,
betting they will fare better than those with large lending businesses.
That dark optimism reflects the state of banking today.
Bread-and-butter businesses that take in, lend out, process and manage
money for individuals and companies are struggling as the novel
coronavirus has infected hundreds of thousands of people in the United
States alone, shut down businesses and set the stage for a global
recession. (https://tmsnrt.rs/2RqR9sT)
Shifting updates about the novel coronavirus and government responses
during the first quarter created volatility that allowed trading
businesses to perform well, analysts said.
Stock markets plunged and soared day-to-day in a manner not seen in at
least a decade, while bond markets reacted to the U.S. Federal Reserve's
cutting interest rates and pouring trillions of dollars into financial
markets to address liquidity issues.

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The Citigroup Inc (Citi) logo is seen at the SIBOS banking and
financial conference in Toronto, Ontario, Canada October 19, 2017.
REUTERS/Chris Helgren

Teams that handle stocks, Treasury bonds and foreign-exchange swaps likely did
better than those in corporate credit, where there was severe stress at times,
analysts said.
Average daily volumes on Tradeweb Markets Inc <TW.O>, which operates electronic
trading platforms for fixed income and equities, were up 39% in the quarter from
a year earlier, the company reported.
But activity began dissipating by late March, and few expect it to return as the
year goes on.
"Good temporary news for the big banks is trading was really good in 1Q,"
Evercore ISI analyst Glenn Schorr said in a recent report.
The last time Wall Street banks experienced this kind of dynamic was the first
quarter of 2009. Investors were worried that banks were in serious trouble, only
to learn that government stimulus programs had created a trading boon, which
held up through most of that year. But coronavirus volatility may turn out to be
quite different, analysts said.

Banks have dramatically restructured their trading businesses since then, and
bursts of trading activity have become much more fleeting, even when they are
extreme. "If we look back to, like, 2Q '18 when we had that sharp market
correction, it took several quarters in a good economy for that trading activity
to come back," Morgan Stanley analyst Betsy Graseck said in an interview. "With
this economy it's going to take a little bit longer."
(Reporting by Imani Moise and David Henry; Additional reporting by Sumeet
Chatterjee; Editing by Lauren Tara LaCapra and Leslie Adler)
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