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US Banks’ Capital Market Revenues Fell in 3Q15

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Global uncertainty has affected trading revenues

Global market uncertainty took a toll on US banks’ capital market revenues (KBE) during 3Q15. In a Barclays (BCS) conference held in September, officials from JPMorgan Chase (JPM), Citigroup (C), and Bank of America (BAC) warned about a 5–10% fall in trading revenues from the fixed income, currency, and commodities units.

The trading business contributes approximately one-third of major US banks’ (IYF) (IYG) revenues. Even before the Fed’s decision to hold a rate hike was announced, the Greek debt crisis and China’s slowdown were keeping investors out of the market.

Another major reason for the slump in trading activity is that the Fed has kept audiences guessing about its future course of action. At previous meetings, the Fed has given some guidance about when it would hike rates, but nothing like this happened in the meeting held in September.

While the bond markets do enjoy some sense of uncertainty, investors don’t like when events are absolutely unpredictable.

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Goldman Sachs was worst-affected

Goldman Sachs (GS) was the worst-hit by the slump in trading during the quarter as compared to its peers. Fixed-income, currency, and commodity (or FICC) trading revenues at Goldman Sachs plunged by 33% over the last year to $1.5 billion. This is ~20% of the company’s total revenues.

Meanwhile, FICC trading revenues of its closest competitor JPMorgan Chase fell 23% year-over-year to $2.3 billion. In comparison, trading revenues for Citigroup fell by 16% and trading revenues for Bank of America fell by 11%.

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