Trading revenues jumped 16% in 3Q16
In 3Q16, Citigroup’s (C) fixed income, currencies, and commodities trading revenues rose 35% to $3.5 billion while equity trading revenues fell 34% year-over-year to $663 million. Overall, trading revenues grew 16% to $4.1 billion, beating the company’s forecast of “mid-teens” growth. The drivers include supportive macro settings in the quarter, a rise in LIBOR cost, the retreat of European banks, and divergent monetary policy.
“While the Brexit vote really seems to have engaged our corporate clients last quarter, with the rate debate that happened during the third quarter, we got good engagement from our investor clients and that led to spread product revenues being up significantly,” CFO John Gerspach said. “The nice thing about the Fed is, depending upon who spoke when, you got a different view of which way rates were going.”
Spread product revenues surged 45% while currency and rates trading rose 30%. Trading volumes were also boosted by differing outlooks on rate hikes from the Federal Reserve. Further, the Brexit vote and low interest rates aided trading in interest rate linked assets.
At a Barclays (BCS) conference last month, Citigroup CFO said he expected trading revenues to grow by “single digits” in the third quarter. However, compared to the previous quarter, trading revenues were expected to be significantly lower.
Similarly, J.P. Morgan (JPM)(BAC) also reported healthy trading revenues in the quarter. Banks (XLF) have rebounded after a challenging first quarter. In the third quarter, financial markets improved and trading volumes picked up post- Brexit as traders reshuffled their portfolios to adjust their exposure to the United Kingdom. However, the Brexit vote has negatively impacted mergers and acquisitions activity in the Eurozone.