Strong trading revenues see major banks squash predictions this earning season

Revenues at Goldman Sachs, Morgan Stanley, and Citi soared on the back of gains made in trading, lending and ongoing market volatility.

Major investment banks have surpassed revenue predictions in the first quarter on the back of ongoing market volatility and better than expected trading revenues.

Institutions have leveraged trading to offset market volatility caused by the Ukrainian conflict and the global pandemic combined with a slowdown in IPO and merger related activity, which many predicted would heavily impact revenues in the first quarter.

Wall Street had a sterling first quarter, with its leading players reporting better-than-expected results compared to Q4 on the back of increased trading activity. Goldman Sachs reported a 21% jump in FICC revenues on the year prior, Bank of America reported a 10% rise in equity revenues and Citi reported a huge 77% and 66% increase in fixed income and equities revenues in comparison with the fourth quarter.

Goldman Sachs reported revenues of $12.93 billion in the first three months of the year, down 27% on the first quarter last year due to losses in asset management and investment banking. However, the first quarter marked a 2% increase on the bank’s Q4 2021 results, driven by its global markets businesses, which accounted for 61% of its total revenues – 4% higher than the same period last year and notably 98% higher than the fourth quarter.

Equities generated $3.15 billion for Goldman – down 15% from the year prior – however it was ongoing market volatility exhibited in increased FICC revenues that proved to be the bank’s saving grace, generating $4.72 billion, up 21% from the same period last year, thanks to strong activity in currencies and commodities.

“It was a turbulent quarter dominated by the devastating invasion of Ukraine. The rapidly evolving market environment had a significant effect on client activity as risk intermediation came to the fore and equity issuance came to a near standstill,” said David Solomon, chairman and chief executive officer at Goldman Sachs.

“Despite the environment, our results in the quarter show we continued to effectively support our clients and I am encouraged that our more resilient and diversified franchise can generate solid returns in uncertain markets.”

Morgan Stanley reported net revenues of $14.8 billion for the first quarter, compared with $15.7 billion in the same period last year. While investment banking revenues slumped 37% in comparison with last year, the bank saw a 10% increase on equity net revenues at $3.2 billion. Fixed income revenue totalled $2.9 billion, marking a marginal decrease.

“The quarter’s results affirm our sustainable business model is well positioned to drive growth over the long term,” said James P Gorman, chairman and chief executive officer at Morgan Stanley.

Trading revenues also seemed to carry Citigroup across the line after it also reported a drop in revenue of 2% to $19.19 billion in comparison with the first quarter of last year. This figure marks a 13% increase on revenues generated in the fourth quarter of last year.

Revenues from the bank’s institutional clients group, which includes both trading and investment banking, fell 2% year on year to $11.16 billion. However, in comparison with the fourth quarter it rose by 25%, driven by a 77% and 66% increase in fixed income and equities, which generated $4.3 and $1.5 billion respectively.

Citigroup also confirmed last week that it had set aside $1.9 billion for potential losses caused by its exposure to Russia and the Ukraine conflict.

“In markets, our traders navigated the environment quite well, aided by our mix, with strong gains in FX and commodities,” said Citi chief executive Jane Fraser. “However, the current macro backdrop impacted investment banking as we saw a contraction in capital market activity. This remains a key area of investment for us.”

Unlike its peers, Bank of America reported a 2% increase in total revenues to $23.2 billion, driven by net interest income which saw a 13% increase in the first quarter thanks to loans reaching pre-pandemic levels, strong deposit growth and investment of excess liquidity.

“Net interest income increased by $1.4 billion versus the year-ago quarter supported by strong loan and deposit growth. Going forward, and with the forward curve expectation of rising interest rates, we anticipate realising more of the benefit of our deposit franchise,” said BofA’s chief financial officer, Alastair Borthwick.

Sales and trading were down 7% to $4.7 billion at Bank of America, including Fixed Income Currencies and Commodities (FICC) revenue of $2.7 billion and equities revenue of $2 billion.

JP Morgan Chase & Co also reported losses in markets revenues, down 3% to $8.8 billion with equity revenue seeing a drop of 7% and fixed income seeing a drop of 1%.

The bank sunk $524 million worth of losses in Credit Adjustments & Other under its corporate and investment banking division driven by widened spreads and credit valuation adjustments relating to both increases in commodities exposures and markdowns of derivatives receivables from counterparties associated with Russia.

“We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,” said Jamie Dimon, chairman and chief executive officer at JP Morgan.