Key facts
- High interest rate volatility during the quarter reduced demand for bond transactions.
- Morgan Stanley's CFO noted unexpected sharp rate increases throughout the third quarter.
- Bank of America's CFO cited reduced client activity and changing market conditions as factors affecting FICC businesses.
- Equity trading revenues saw significant growth across major banks, contrasting with fixed income performance.
Wall Street banks experienced a decline in bond trading revenues during the last quarter, attributed to high interest rate volatility that dampened investor demand for transactions. Morgan Stanley saw a 7% drop in its fixed income, currencies and commodities (FICC) trading revenues, while JPMorgan's fell 4% and Bank of America's by 17%. Goldman Sachs reported flat FICC trading revenues, and Citigroup was the only major bank to post growth, with a 4% increase driven by its foreign exchange and spread products businesses.
Morgan Stanley's CFO, Sharon Yeshaya, noted that unexpected sharp interest rate increases throughout the third quarter led to reduced demand for structured transactions and challenges for investors with bond portfolios. Bank of America's CFO, Alastair Borthwick, similarly pointed to reduced client activity and shifting market conditions. The benchmark 10-year Treasury yield experienced its largest quarterly increase since 2009 by the end of September. Rising long-term yields also contributed to higher unrealized losses on banks' securities portfolios, with Bank of America reporting $109 billion in such losses by the end of September, up from $85 billion at the end of June.
In contrast to fixed income trading, equity trading desks reported significant revenue growth. Goldman Sachs' equity trading revenue surged 72%, Morgan Stanley's grew 41%, and JPMorgan's increased by 49%. Oppenheimer analyst Chris Kotowski expressed concern about the reliance on potentially volatile equity revenues.