Banks increasingly reliant on growing equity markets
The Financial Times reported that big lenders have increasingly relied on the rising market for equities, getting almost half of its investment banking revenues in the fourth quarter from equity trading and underwriting. Citing data from JPMorgan Chase, the report said resurgence in the stock markets and a prolonged weakness felt in fixed income trading could mean that around 47% of fourth quarter revenues will be generated from equity trading and underwriting. The data was obtained from a sample of major global investment banks which include Goldman Sachs, Credit Suisse, Morgan Stanley and Deutsche Bank.
The report said US lenders will begin to report their earnings for the fourth quarter on Tuesday, January 14. European banks will also follow with their earnings reports. In the midst of a more challenging climate for investment banking, four of the five large banks in Wall Street are expected to unveil weaker year-on-year profits in their earnings report, FT said.
Analysts surveyed by Bloomberg said JPMorgan's earnings are set to be dented with legal costs. The bank's core net income is set to drop in the fourth quarter to $5.1 billion compared to the same period in 2012 when it posted income amounting to $6.6 billion, the report said.The net income of Bank of America is expected to decline to $3.1 billion from $3.2 billion. However, because the lender still faces the same legal issues as JPMorgan, analysts said more charges could still be taken by BofA, the report said. For Goldman Sachs, another dull quarter is set to be predicted for fixed income trading as its total net income plunges from $2.8 billion to $2.1 billion.
The only Wall Street bank that is expected to give bright fourth quarter results is Citigroup, whose net income grew to $3 billion from $2.5 billion, the report said. Although equity-linked businesses may not make up for the continued decline in fixed income trading, the report said it could increase the shrinking revenue of investment banks.