Traders work on the floor of the New York Stock Exchange (NYSE) in New York, US, on Friday, Feb. 16, 2024. Wall Street is ending the week on a bit of a sour note, with stocks and bonds falling after economic data continued to fuel speculation the Federal Reserve will be in no rush to cut interest rates. Photographer: Michael Nagle/Bloomberg
Michael Nagle/Bloomberg
(Bloomberg) --Wall Street's traders are picking up the slack as income from lending slumps across the industry.
In a rare sweep, fixed-income and equities traders at five of the largest U.S. banks beat estimates for the first quarter. Altogether they posted nearly $2 billion more from trading than analysts expected, eking out a small gain from a year ago in defiance of an anticipated decline.
"Interest in investing in equities has increased," Jim DeMare, Bank of America's head of global markets, said in an interview Tuesday. Broadly, geopolitical tensions and economic uncertainty have "caused investors to rethink their strategy, which drives opportunity in the markets."
The haul helped ease the blow from disappointing net interest income, driven lower by increased pressure to pay out more for deposits. JPMorgan Chase ended a spree of seven record consecutive quarters with its NII results last week. Lenders had been bracing for an end to the quarterly windfalls they reaped as the Federal Reserve lifted interest rates — which prompted Evercore ISI analyst Glenn Schorr to write "the beat-and-raise party had to end at some point."
As lending income slowed, banks returned to relying on their core Wall Street operations. Bank of America traders notched one of their best first quarters on record on Tuesday, boosted by a surprise 15% increase in equities trading to $1.87 billion. Morgan Stanley's fixed-income trading business posted $2.49 billion in revenue, compared with estimates of $2.33 billion, while equities revenue was $2.84 billion. Goldman Sachs traders delivered $7.63 billion in revenue on Monday, surging past analyst estimates. At JPMorgan, both fixed income and equity trading beat forecasts.
Deal Rebound
While senior executives were reluctant to make predictions about trading results, they emphasized a pickup in another Wall Street business: investment banking. The group also uniformly trounced estimates for debt and equity underwriting, and predicted more to come.
"Where we stand today, it's clear that we're in the early stages of a reopening," Goldman Sachs Chief Executive Officer David Solomon said Monday. "I've said before that the historically depressed levels of activity wouldn't last forever. CEOs need to make strategic decisions for their firms, companies of all sizes need to raise capital, and financial sponsors need to transact to generate returns for their investors."
It's a welcome reprieve after a massive slowdown over the past two years. Economic uncertainty stemming from rising interest rates and geopolitical tensions hampered investment-banking results, whiplash for banks and their shareholders on the heels of a pandemic-era boom in 2021.
"We expect the steady build of this business to continue," Morgan Stanley Chief Financial Officer Sharon Yeshaya said on a conference call Tuesday. "The underlying trends suggests that confidence is increasing."
The North Carolina-based bank rolled out a multiyear program to provide loans, investments and philanthropic support to communities in the western part of the state.
Consumer Financial Protection Bureau Director Rohit Chopra said the FICO credit-scoring model has drawbacks in price, predictiveness and market competition, and stakeholders should develop a more open-sourced model that uses artificial intelligence.
Analysts say lenders' shares could rally on deregulation, lighter tax burdens and a resurgence of M&A. Declining interest rates and lower loan losses could further bolster bottom lines and attract investor interest.
The contract gives the nation's oldest bank access to more than $3 billion in deposits a month. Comerica, the current administrator, has received a three-year extension of service to help with the transfer.
