Brexit bump instills no confidence on sullen bond trading floors

© Reuters. A ‘Wall St’ sign is seen above 2 ‘One Method’ check in New York

By Olivia Oran (Reuters) – Even after a good quarter, optimism is difficult to find on Wall Street’s bond trading floors. Revenue from set income, currency and products trading was up 24 percent at the five greatest U.S. banks in the 2nd quarter from a year back, to $11.8 billion, according to a Reuters computation based on the banks’ reported results. Results were helped by Britain’s surprise vote to leave the European Union, which rippled throughout international markets– consisting of record currency volumes for some big banks. But executives say that bump in activity was temporary. Although markets have not ground to a stop, activity so far in the third quarter has actually not been robust. Some upcoming monetary policy decisions might spur more action, however Wall Street’s hopes are not high that this will be a turn-around year for bond trading. “We aren’t buying into it just yet,” stated Brian Kleinhanzl, a bank expert with Keefe, Bruyette & & Woods. “The environment is fragile since if there is just one unfavorable event, investors will move to the sidelines.” Apart from an odd quarter here and there, leading lenders have viewed bond trading income grind lower for about 7 years. That is partially because financiers have actually been parked on those sidelines, and new regulations on proprietary trading, derivatives and capital have actually restricted what banks can do in bond markets, making business less profitable. From 2009 to 2015, JPMorgan Chase & & Co (N:-RRB-, Citigroup Inc (N:-RRB-, Goldman Sachs Group Inc (N:-RRB-, Bank of America Corp (N:-RRB- and Morgan Stanley (N:-RRB- saw annual revenue from bond trading stop by $34 billion, or 44 percent. Those banks have actually reported revenues through the 2nd quarter, showing bond trading essentially flat for the very first half of this year. Morgan Stanley reports outcomes on Wednesday. “There’s been great deals of change in the fixed-income market over the past numerous years,” Mizuho’s head of fixed earnings sales and trading Thomas Hartnett said in an interview. “Luckily, this gives us a clearer picture of the ‘brand-new regular.'” Trading volumes might get a lift this summertime from a much-anticipated Bank of England conference, or from Japan’s reserve bank doing something about it to spur its economy. However on conference calls to talk about second-quarter outcomes, senior bank executives mainly shied away from making predictions about set earnings markets being durable in the second half of the year. In fact, even though the Brexit vote provided a momentary boon for trading, it’s exactly the type of occasion that spooks investors in the first location, stated Goldman Chief Financial Officer Harvey Schwartz. “The violence of the very first quarter … and the issues about Brexit in the 2nd quarter– I believe it’s reasonable for us to say we feel like these are the types of aspects that contribute to minimized customer sentiment. They lowered confidence, and as an outcome they minimize activity,” he stated. Goldman cut bond trading personnel in the very first half of the year as part of a more comprehensive initiative to lower annual costs by $700 million. Analysts are being cautious in their projections for bond-trading earnings, arguing that business stays challenged and will almost certainly never return to its splendor days. “This quarter was relatively much better but it wasn’t definite,” stated Justin Fuller, a senior director at Fitch Scores who focuses on bank stocks. “Trading is still mainly episodic.”

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