A Wall Street sign hangs in front of American flags outside the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Victor J. Blue/Bloomberg)

No Relief for Banks' Traders as Bosses Signal a Lingering Slump

(Bloomberg) -- Wall Street executives had a worrisome message for investors this week: The lack of client activity that sunk trading results in the second quarter has continued.

JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. are seeing declines ranging from 15 percent to 20 percent in the third quarter from the same period a year ago, executives announced at an investor conference hosted by Barclays Plc in New York. Goldman Sachs Group Inc. didn’t put a number on its performance, even as co-President Harvey Schwartz lamented “a pretty challenging environment.”

The biggest investment banks posted declines in trading revenue in the second quarter as volatility dropped and as asset managers waited to see if central banks would raise interest rates and President Donald Trump’s administration could enact any of its policy goals. Goldman Sachs posted its worst first-half trading results in the 11-year tenure of Chief Executive Officer Lloyd Blankfein.

JPMorgan’s trading revenue is on pace to drop about 20 percent in the current period from a year earlier, CEO Jamie Dimon said Tuesday at the conference. The projected decline would be JPMorgan’s worst for the July-through-September period since 2011, and is bigger than the 15 percent drop Citigroup and Bank of America have signaled.

Last year’s third quarter was “particularly good,” Dimon said. Back then, the firm posted $5.7 billion of markets revenue, a 33 percent increase driven by fixed-income desks.

Another trading decline may mean more job cuts in that business, which already faces pressure from the constant creep of automation. Client-facing roles in equities trading at the 12 biggest global investment banks dropped 2 percent from a year earlier at June 30, while staff in fixed-income trading fell 1 percent, according to data from industry analytics firm Coalition Development Ltd. That was the fifth-straight annual decline in front-office headcount for both businesses, according to the data.

Even with another weak quarter, Goldman Sachs said it was moving to grow more in its fixed-income business after years of cutting. The bank said its lateral hires from other firms were double that of a year ago as it adds salespeople and staff in its European business. 

Citigroup Chief Financial Officer John Gerspach said trading has suffered as volatility remains “somewhat subdued.” Last year’s performance benefited from a boost in activity as clients wagered on the prospects for the U.S. election, he said Monday. This quarter, even mounting tensions with North Korea, two deadly U.S. hurricanes and escalating political turmoil haven’t provided a comparable catalyst. The last three weeks of this month could swing the quarterly results, he said.

September Matters

“For the whole third quarter you really don’t know what happens until you figure out what the operating environment is in September,” Gerspach said.

Citigroup reported $4.07 billion of trading revenue in the third quarter of last year, according to the company’s earnings supplement. A 15 percent drop would mean revenue of $3.46 billion, which would be the lowest quarterly figure since the final three months of 2015.

At Bank of America, CFO Paul Donofrio said that trading revenue will probably decline 15 percent from last year’s third quarter. He said on Tuesday that some company CEOs and treasurers the bank counts as clients are less optimistic than they were before the election. The Charlotte, North Carolina-based bank had trading revenue of $3.6 billion a year ago.