The Borneo Post

Wall Street to answer the good/bad question

-

Several banks mentioned that volatility spikes are negative for revenues, as it hurts conviction in the short term. Clients shy away from trading during extreme swings.

AFTER bemoaning quiet markets that crimped trading revenue throughout most of 2017, banks celebrated volatility spikes in late January and February that brought life back to the equities, foreign- exchange, Treasury and commodity markets.

But not all volatility is created equal. Big movements in asset prices sometimes spook clients enough that they decide to simply wait out the fluctuatio­ns. “Several banks mentioned that volatility spikes are negative for revenues, as it hurts conviction in the short term,” John Heagerty, an analyst at Atlantic Equities, said in a note to clients. “Clients shy away from trading during extreme swings.”

Which trend dominated the quarter will start becoming clear on Friday, when JPMorgan Chase and Citigroup report results for the first three months of the year.

Trading revenues at the five largest Wall Street banks – a group that also includes Goldman Sachs, Bank of America and Morgan Stanley – are expected to climb 5.1 per cent to US$ 22.6 billion ( RM86 billion), according to analyst estimates compiled by Bloomberg.

Goldman Sachs is poised to post the biggest gains, the estimates show, followed by Morgan Stanley and JPMorgan.

Here’s a look at other big trends in play when banks begin reporting earnings:

John Heagerty, an analyst at Atlantic Equities, said in a note to clients

• Trade war: Tariff announceme­nts by the US and China this month sparked fear among investors that a trade dispute could derail the global economic expansion. Bank executives might get quizzed about implicatio­ns for the US economy and what they’re hearing from corporate clients, with implicatio­ns for commercial-lending businesses. • Deposit gathering: Deposit growth slowed to its lowest level since 2011 in the first quarter, according to Federal Reserve data. So far, banks have been able to pass interest rate increases on to borrowers without paying more for the deposits they use to fund the loans. Many analysts expect that trend to come to an end soon: A report by S& P Global Market Intelligen­ce predicted lenders will double the share of Fed rate hikes they pass along to depositors by year- end.

Another wild card in that debate are online- only banks, including Goldman Sachs’s Marcus, which continue to boost rates on their savings products to quickly gather deposits that fund lending businesses. • Credit costs: Investors’ concern about record consumer debt levels is prompting assurances from bank executives that, with the economy growing and unemployme­nt low, most customers are still paying their bills on time. Still, provisions for souring loans at the five largest commercial banks in the US are expected to climb 3.7 per cent to US$ 5.5 billion in the first quarter compared with the prior three month period, according to estimates. Investors will want to know if that growth means credit quality is becoming a problem again for the US banks. • CCAR plans: This month was the deadline for banks to submit their plans for returning capital to shareholde­rs – the Fed’s Comprehens­ive Capital Analysis and Review, also known as CCAR. While regulators won’t weigh in on those proposals until June, investors are anxious to see how banks will divvy up extra capital generated by the Trump administra­tion’s tax overhaul. — WP-Bloomberg

 ??  ?? Commuters exit a train at a Wall Street subway station near the New York Stock Exchange in New York on March 16. — WP-Bloomberg photo
Commuters exit a train at a Wall Street subway station near the New York Stock Exchange in New York on March 16. — WP-Bloomberg photo

Newspapers in English

Newspapers from Malaysia