Market Conditions Create Headwind for Banks

03/18/2016 9:10 am EST


Michael Berger

President & Founder,

After several leading Wall Street banks issued warnings about lower trading and deal revenue, Michael Berger, of, highlights banks that he expects to report weak first quarter earnings next month.

2016 has been a rough year for the banking industry and it looks like the worst is far from over…

Although the first quarter is usually Wall Street’s strongest, firms such as JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) have issued warnings about lower trading and deal revenues as unstable markets have led to fewer trades.

Earlier this week, Jefferies Group announced that revenue from trading stocks and bonds fell by 82% during the first quarter. The company noted that total revenue fell by almost half from a year earlier.

The weak trading revenue reported by Jefferies has caused a number of analysts to question how bad things have become on Wall Street and expect to see banks lower expectations as we approach earnings season.

Goldman Sachs Enters Spotlight

One of the banks that recently entered the spotlight is Goldman Sachs Group Inc. (GS). The leading Wall Street bank is one of the most dependent on revenue from trading and deals and has not provided any guidance on their performance.

Analysts at Credit Suisse expect to see GS’s income from investment banking fall 32% during the quarter (compared to the same quarter last year).

Citigroup and JP Morgan Cite Concerns

During the last two months, C and JPM both issued warnings about trading and deal revenue as market conditions have caused clients to trade less.

In early March, Citibank CFO John Gerspach said that he expects first-quarter revenue from fixed-income and equity trading to fall 15%. Gerspach also expects revenue from investment-banking operations to fall 25%.

In February, JPMorgan’s investment bank said that a slowdown in debt and equity underwriting may contribute to a 25% drop in fee income. At the time, they reported that revenue from sales and trading was already down about 20%.

Expect Headcount Reductions

We expect to see several Wall Street firms reduce the number of people working in departments and continue to suffer from volatile market conditions.

Firms like GS have already reduced their fixed-income business so as to eliminate underperformers. We expect to see this trend not only continue but ramp up significantly as we approach the second half of the year.

By Michael Berger, President and Founder,

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