Fixed-income trading paying off for US banks

Wall Street’s biggest banks have spent years waiting for the end of a slump in fixed-income trading. It’s finally paying off.

Citigroup’s fixed-income revenue surged 35 per cent to $3.47 billion in the third quarter, and JPMorgan Chase posted $4.33 billion from the business, $1 billion more than analysts’ average estimates.

Marianne Lake, JPMorgan’s chief financial officer, said Friday that the momentum continued into October.

That would be a welcome change from the past seven years, with fixed-income revenue tumbling to $70 billion in 2015 at the world’s biggest investment banks, or about half the 2009 level, according to data compiled by financial research firm Coalition Ltd.

US banks have been counting on a rebound even as European rivals such as UBS Group retreated or made deep cuts to save money. Friday’s earnings reports may bode well for Bank of America, Goldman Sachs Group and Morgan Stanley, which report third-quarter results next week.

Bank stocks initially climbed after earnings were released, with the KBW Bank Index up as much as 1.8 per cent, before paring those gains in the wake of a report showing an unexpected drop in US consumer sentiment.

“American banks will continue to push for growth where they can get it,” said Jeff Morris, head of US equities at Standard Life Investments. “You’ve seen a number of the European banks scale back in their capital-market operations.”

Legal charges

Some of the gains may be due to Deutsche Bank’s woes, according to John Gerspach, Citigroup’s chief financial officer. The Frankfurt-based lender has said it is losing out on business as it battles to retain confidence amid mounting legal charges.

The biggest US banks have been gaining market share at the expense of European competitors for years.

JPMorgan’s strong jump in fixed-income revenue helped the firm beat analysts’ profit estimates as well as it posted $6.29 billion of third-quarter net income. Citigroup’s $3.84 billion profit also topped expectations. At Wells Fargo, where institutional trading makes up a much smaller portion of its business, net income slid to $5.64 billion, the company said Friday.