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 and 12% trading-revenue growth in the third quarter, below last quarter’s 36% increase. The column warns that pressure to sustain trading returns could encourage banks to take more risk as momentum fades.
1. Trading growth expected to slow
Analysts expect JPMorgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley to report nearly 6% combined earnings growth from a year earlier. Trading revenue is forecast to rise 12%, compared with a 36% increase last quarter, while net interest income is expected to grow 10%.
2. Uneven outlook across banks
Bank of America is expected to report lower trading revenue, while Goldman Sachs is forecast to rise 30%. Goldman’s investment bank is expected to face the sharpest overall reversal in the group next year, with analysts projecting an 8% decline.
3. Pressure to sustain returns
The column says elevated volatility and the growth of independent market makers have helped produce unusually consistent double-digit trading growth, while investment banking is slowing. It warns that the extra capital allocated to markets divisions could become a drag as momentum fades, potentially tempting banks to accept more risk to boost returns.
