Trading revenue was likely to be a black spot in U.S. banks` third-quarter earnings, as volatility remained low, and investors have little hope the fourth quarter will be much better.
U.S. banks` equity trading volume has been hit by record lows in volatility as investors have less reason to trade if stocks are not moving much. At the end of the third quarter, the quarterly average for the CBOE market volatility index <.vix>, was at its lowest ever. Trading volume graphic: http://tmsnrt.rs/2kHUdmv
On top of this, traders said that equity trading had also been dampened by an ongoing rise in popularity of passive investment instruments such as exchange traded funds over active investing.
Trading volume for fixed income, currencies and commodities (FICC) was also hurt by weak volatility in the quarter. Making matters worse, banks face a difficult comparison with the year-ago quarter when investors were busy reacting to the Brexit vote and preparing for the U.S. election.
“August was very slow. We saw some fits and starts from different headlines in September,” said Thomas Roth, head of U.S. Treasury trading at MUFG Securities America in New York.
While S&P banks were still expected to report overall earnings per share growth of 6.4 percent and revenue growth of 1 percent, according to Thomson Reuters data, analysts pared their estimates during the quarter as expectations for trading revenue declined.
Revenue estimates were 2.2 percent lower than where they were July 1 while earnings estimates were 1.8 percent lower.
Banks in aggregate will report a 16 percent decline in trading revenue from the year-ago quarter and a 7 percent decline from the second quarter, according to KBW estimates, following a 10 percent year-over year drop in trading revenue for the second-quarter.
The third-quarter decline includes a 25 percent drop in fixed income, currency and commodities trading revenue and flat equity trading revenue, according to KBW.
Executives from JPMorgan Chase & Co
Some of the factors that drove trading declines in the third quarter will still be around in the fourth quarter, according to traders and other market watchers.
"Who knows when volatility will pick up?" said Russell Price, senior economist at Ameriprise Financial in Troy, MI. "Comparisons will be better after the first of the year and we could know more on tax reform so that could help on trading activity," he said.
(To view graphic on Weak U.S. trading volume seen weighing on bank earnings, click - http://tmsnrt.rs/2kEYiHO)
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)