Banks Facing Challenging Conditions, Rising Uncertainty in Q2

The second quarter of 2016 saw mixed performances amongst some of the major banks, against a background of increasing uncertainty and challenging trading conditions in currency markets.

Goldman Sachs posted a 20% year-on-year increase in net revenues in what it calls Fixed Income, Currency and Commodities Client Execution, standing at $1.93 billion for the second quarter of 2016.

In its Q2 earnings statement, the firm said that the increase was “due to significantly higher net revenues in currencies and credit products, as well as higher net revenues in interest rate products and commodities”.

“These increases were partially offset by significantly lower net revenues in mortgages,” it said. 

“Although market making conditions generally improved compared with the first quarter of 2016, fixed income, currency and commodities client execution continued to operate in a challenging environment characterised by low interest rates, political uncertainty and concerns about global growth,” it added.

Citi reported year-on-year growth of 10% in Markets and Securities Services revenues, accounting for $4.7 billion in Q2 16. It reported Fixed Income Markets revenues stood at $3.5 billion, up by 14%, “driven by an increase in corporate client activity in rates and currencies as well as a better trading environment in the current quarter, partially offset by lower revenues in securitized products driven by decreased trading opportunities”. 

JP Morgan’s Markets & Investor Services revenue was $6.5 billion, up 13% year-on-year, “driven by higher Markets revenue, up 23%”, it said. Fixed Income Markets revenue, up 35%, reflected “strong performance in rates, and currencies and emerging markets on higher client flows, as well as improved performance in credit and securitised products driven by better market conditions”, the bank said, without specifying the exact figure for Fixed Income Markets revenues.

Meanwhile, Deutsche Bank reported overall revenues in the Global Markets division totalling Eur2.4 billion, 28% lower year-on-year. It added that Foreign Exchange revenues were flat year-on-year, with “significant client activity around the EU referendum in the UK”.

UBS reported Foreign Exchange, Rates and Credit revenues increased by 12% to CHF461 million from CHF413 million year-on-year in Q2 16. However, revenues were down 5% compared to Q1 16. Revenues in both Foreign Exchange and Rates and Credit “increased across the majority of products, reflecting higher client activity and market volatility levels, partly driven by the outcome of the UK referendum on EU membership”, the bank said.

Commerzbank said the Fixed Income & Currencies (FIC) division “profited from the continued demand for currency products, whereas demand for interest rate and credit trading was muted by comparison due to the low interest rate environment and the European Central Bank’s monetary policy activities”.

Reporting results for the wider Corporates & Markets segment, Commerz said that,“In a challenging environment for equities business”,the segment saw its operating profit reduce from Eur473 million in the first half of 2015 to Eur201 million in the first half of 2016.

Of this, Eur119 million was for the second quarter, down from Eur176 million in the second quarter of 2015. 

Finally, Barclays, which reported results for the first half of 2016, showed a 6% year-on-year decrease in Markets income to £2.69 billion. 

Credit income increased 35% to £591 million in H1 16, “driven by strong performance in fixed income credit flow businesses, which benefitted from increased market volatility”.

Beatrice Bedeschi

beatrice@profit-loss.com

Twitter@Profit_and_Loss

Galen Stops

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