How Trading and Investment Banking Have Contributed to Returns
Trading and investment banking activity
Commercial banks (XLF) have seen increased trading and sales activity along with advisory for strategic transactions in recent quarters on upbeat equity markets (SPX-INDEX) (SPY), higher corporate earnings, and the slow rise of interest rates.
JPMorgan Chase’s (JPM) investment banking division posted revenue of $19.5 billion in 1Q17, helped by a 25% rise in banking and a 34% rise in investment banking. The division managed net income of ~$3.2 billion, a rise of 64% on a YoY (year-over-year) basis, resulting from tax benefits, lower provisions, and a rise in revenue.
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JPMorgan remained first in the world in terms of investment banking fees for 1Q17, reflecting its expertise in originations and the execution of large-scale strategic transactions.
Bank of America’s trading play
Bank of America’s (BAC) global markets business garners fees on trading activity, investment banking riding on liquidity, and corporate advisory services. The division posted non-interest income of ~$3.7 billion, compared to ~$2.8 billion in 1Q16. Its net income expanded to $1.3 billion, compared to $973 million during the same period. The returns on BAC’s average allocated capital rose to 15% in 1Q17, compared to 11% in 1Q16. The bank was managing trade-related assets of $422 billion as of March 31, 2017.
Wells Fargo (WFC) manages non-interest income from trading activity, wealth management, and mortgage-related income. The bank posted investment fees of $2.3 billion, service charges on deposits of $1.3 billion, and mortgage banking fees of $1.2 billion in 1Q17. In 2017, banks are expected to see higher volatility, which should result in higher trading and investment banking revenues.