Wall Street’s trading high will be hard to kick
XLF•Analysts expect the six largest U.S. banks to post nearly 6% combined earnings growth in the third quarter, with trading revenue up 12% year over year, down from last quarter’s 36% increase. The article warns that pressure to sustain trading returns could tempt banks to take more risk.
1. Trading growth slows
Analysts expect JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley to post nearly 6% combined earnings growth in the third quarter. Trading revenue is forecast to rise 12% year over year, compared with a 36% increase last quarter, while net interest income is expected to grow 10%.
2. Uneven bank outlooks
Trading forecasts vary, with Bank of America expected to decline and Goldman Sachs projected to rise 30%. Analysts expect Goldman’s investment bank to face the sharpest overall reversal among the group next year, with an 8% decline. Investment banking revenue is projected to be little changed next year, while M&A advisory fees are expected to rise 6%.
3. Pressure to sustain returns
The article says elevated volatility and trading businesses’ growth have produced unusually consistent double-digit growth, while investment banking is slowing. It warns that if trading momentum fades, banks’ added capital in markets divisions could weigh on productivity and create pressure to take more risk.
