| NEW YORK, July 18
NEW YORK, July 18 U.S. banks posted
stronger-than-expected trading results in the second quarter due
to surprisingly active markets in June, but bank executives
stopped short of saying the good times would continue.
Analysts expected banks' bond trading revenue to have fallen
somewhere around 20 percent in the second quarter from the same
period last year. But the drop in aggregate for Bank of America
Corp, Citigroup Inc, Goldman Sachs Group Inc
, JPMorgan Chase & Co and Morgan Stanley
for fixed-income trading was closer to about 10 percent.
Investors and analysts are spending a good deal of time
watching banks' trading businesses because these units have a
big impact on their earnings.
April and May were slow months, with JPMorgan and Citigroup
both saying in May that their second quarter trading revenue
would drop. But June was a more active month. The European
Central Bank cut interest rates and announced other initiatives
to further loosen monetary policy. Ukraine was relatively calm,
and U.S. jobs grew at a healthy pace, all spurring shifts in the
outlook for interest rates and the broader global economy.
The summer months of July and August tend to be a slower
season compared to other quarters.
JPMorgan Chief Financial Officer Marianne Lake said on a
Tuesday conference call with analysts that executives had seen
"no catalyst that would lead us to believe that (the pace of
trading) would, necessarily continue. And as we have moved into
July, it so far has been our experience that it has not
continued at that level."
In recent days, trading volume has picked up, as fighting
has intensified in the Gaza strip and a Malaysian airliner was
downed in Ukraine. With these tensions ratcheting higher,
investors bought Treasuries on Thursday and Friday.
But even if macroeconomic changes spur more activity, there
are longer-term pressures on bond trading that will likely
prevent volume from rising too much, executives said.
New rules for leverage and liquidity give banks an incentive
to hold fewer bonds that trade infrequently on their books. That
may cut into trading volume.
"If you think about balance sheets, they're getting squeezed
on two ends," Morgan Stanley Chief Financial Officer Ruth Porat
said in an interview.
David Ellison, a portfolio manager at Hennessy Funds, said
it is wise to avoid banks with too much exposure to the business
because their profits are too hard to forecast. He is looking
instead at regional banks that focus on traditional activities
"You want to own the traditional banks" because those
institutions stand to benefit more from an improving economy and
are less prone to risky trading, Ellison said. "You want to move
away from risk and leverage of Wall Street."
(Editing by Bernard Orr)