Big Banks Signal Another Tough Quarter for Trading Businesses

By Liz Hoffman and Emily Glazer Features Dow Jones Newswires

Bank executives are signaling another tough quarter for their trading businesses as quiet markets and skittish clients wreak havoc on one of Wall Street's core profit engines.

Continue Reading Below

J.P. Morgan Chase & Co. Chief Executive James Dimon said at a banking conference in New York Tuesday that trading revenue is likely to fall around 20% in the third quarter compared with the year-earlier period.

At the same conference, the chief financial officers of Bank of America Corp. and Citigroup Inc. both echoed Mr. Dimon's remarks, saying that trading revenue is likely to fall 15% in the quarter.

"It's still a pretty challenging environment," Goldman Sachs Group Inc. co-Chief Operating Officer Harvey Schwartz said Tuesday morning at the same conference, sponsored by Barclays Bank. He said "the market environment in the third quarter feels like the first and second quarter, " when Goldman's trading arm turned in its worst first half on record.

Goldman doesn't give guidance on its trading results in the middle of the quarter and Mr. Schwartz declined to offer a specific number.

The five biggest banks as a group saw trading revenue dip 11% in the second quarter.

Continue Reading Below

Volatility remains near all-time lows, despite worrying political and geopolitical headlines. Many investors are waiting for clarity on how soon and how quickly interest rates will rise -- and sitting on their hands in the meantime.

What's more, many assets are trading within narrow price bands, meaning it's hard for brokers to make much money standing between buyers and sellers.

J.P. Morgan's Mr. Dimon predicted that busy markets will return. "You will have volatile markets again," he said. "People will panic, you will panic, running through the door like everybody else."

Mr. Dimon said he may stop giving trading guidance because investors are too focused on near-term results. Earlier this summer, he chastened reporters on a press call for seeking intraquarter details about trading revenue.

One thing that won't affect J.P. Morgan's trading results this quarter is bitcoin. Mr. Dimon called the cryptocurrency "a fraud" said he'd "fire...in a second" any trader who dabbled in the frothy, volatile bitcoin market.

Merger and capital markets activity has been relatively strong, which should offer some salve for the trading sting.

And as Citigroup Chief Financial Officer John Gerspach noted Monday, September is typically a make-or-break month for the quarter as investors and corporate executives, returned from summer retreats, tweak their portfolios and set year-end deals in motion.

"A lot will depend on what really happens to the rest of this month," Mr. Gerspach said.

Write to Liz Hoffman at liz.hoffman@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

September 12, 2017 17:08 ET (21:08 GMT)