Banks' Bond-Trading Income Soars in First Quarter, JPMorgan Says

(Bloomberg) -- The world’s biggest banks are likely to increase their bond-trading revenue by more than a third in the first quarter, furthering a recovery that generated billions of dollars last year, according to JPMorgan Chase & Co.

Total sales from fixed-income, currency and commodity products, or FICC, will climb 34 percent in the first quarter compared with a year earlier as credit-trading performance improves, JPMorgan analysts led by Kian Abouhossein wrote in a note to clients. That will cushion a 3 percent decline in revenue from trading stocks, while income from advising clients on underwriting and mergers and acquisitions will jump 22 percent, the analysts wrote.

The rebound in bond trading for the world’s biggest banks, including JPMorgan, Citigroup Inc. and Goldman Sachs Group Inc., began last year with the first gains since 2012. In aggregate, the big banks have fired about a third of their bond traders over the past five years as stiffer regulation introduced after the financial crisis crimped profitability at that part of their business.

Banks benefited at the end of last year as clients rushed to wager on the direction of the U.S. economy under President Donald Trump, a trend that likely continued in the first quarter, the JPMorgan analysts wrote. Lenders are also likely to benefit as their holdings of corporate debt gain value while customers step up trading, according to the note.

The JPMorgan analysts’ top picks to benefit from the trend are Goldman Sachs and Credit Suisse Group AG, the Swiss lender that lost about $1 billion a year ago on its holdings of high-risk assets. The analysts increased their estimates for Goldman Sachs, Morgan Stanley, Credit Suisse, UBS Group AG and Deutsche Bank AG.

Some lenders have already flagged the improved first-quarter performance. Deutsche Bank, the Frankfurt-based lender struggling to keep its market share amid legal problems, said earlier this month that debt-trading revenue was up more than 30 percent from a year earlier in January and February, while equities revenue was flat.

To contact the reporter on this story: Donal Griffin in London at dgriffin10@bloomberg.net.

To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Keith Campbell, Paul Armstrong