Trading
Increased volatility in August benefited some trading books this quarter, with JPMorgan expecting a year-over-year 10% bump to revenue for the business. But that’s partly the result of a weak third quarter in 2018. The figure will show a decline from the previous three months, Chief Executive Officer Jamie Dimon said at an investor conference in September.
Also last month, Citigroup Chief Financial Officer Mark Mason said to expect a trading-revenue decline, while Bank of America’s chief operating officer, Tom Montag, said fixed-income trading would be down.
The pessimistic outlooks contributed to bank shares’ under-performance. The KBW Bank Index has climbed about 15% this year, compared with 19% for the broader S&P 500.
Interest Rates
JPMorgan, Citigroup and Wells Fargo have all warned investors that net interest income -- the money banks make from customers’ loan payments minus what they pay depositors -- would fall in the third quarter as interest rates decline.
After inverting and sparking investor anxiety earlier in the quarter, the yield curve is now slightly positive, offering some relief, said Brian Kleinhanzl, an analyst at Keefe Bruyette & Woods. KBW estimates NII will fall 2.1% instead of a previously projected 4% drop.
Looking past the third quarter, investors on this week’s conference calls will be listening for clues on how big a hit revenue will take in 2020 from the Fed’s easing cycle, Katzke at Credit Suisse said.
Citigroup is at an advantage on this front, because it’s less exposed to the U.S. than other big banks, according Graseck at Morgan Stanley. “We’re going into the quarter most positive on Citigroup,” she said.
One area where lower interest rates are helping banks is the housing market. The Mortgage Bankers Association estimated a 21% increase in originations for the third quarter and a 58% jump in refinancings.