April 14 (Reuters) – Wall Street banks reported booming trading revenues after a volatile first quarter but sounded caution about the ripple impact on clients of higher oil and geopolitical risk.
Market volatility tends to be a boon for trading desks at large banks, as investors increasingly rejig portfolios to hedge against risks. Earnings reports from Wells Fargo’s WFC.N, JPMorgan Chase JPM.N, and Citigroup C.N on Tuesday showed broadly stronger trading revenue.
“The performance of the quarter is a function of a high level of client engagement, volatile market conditions and success in managing the associated risks,” JPMorgan’s Chief Financial Officer Jeremy Barnum said. Barnum held off from guiding on longer-term markets performance but said there were some bright spots going forward.
“Generally, I would caution people against projecting forward the outperformance in this quarter, because I think conditions were unique,” said Barnum. “But in the grand scheme of things, we feel good about the franchise, that there are some pockets of very durable revenue.”
Citi reported its highest quarterly revenue in a decade, boosted by market volatility during the first quarter which increased its total markets revenue by 19% over a year earlier, with fees from equity markets up 39% in the quarter, helped by growth across derivatives, prime services and cash equities. Prime balances in the markets division jumped more than 50%, the firm said. Revenue in fixed income trading was up 13% over a year earlier, rates and currencies revenue rose 6% and other fixed income rose 27%, driven by strong performance in commodities.
JPMorgan Chase JPM.N posted a better-than-expected 13% jump in first-quarter profit as volatile markets lifted trading revenue to a record and dealmaking improved. JPMorgan’s markets revenue rose 20% in the first quarter with revenue from fixed income markets up 21% while equity markets surged 17%.
Wells Fargo’s markets revenue surged 19% in the quarter, which it said was driven by higher revenue across most asset classes.
Goldman Sachs GS.N on Monday also showed strength in equities trading. The bank’s equities trading business had a record quarter, with revenue from trading intermediation and financing rising 27%. But the U.S. investment bank also showed weakness in its fixed income, currencies and commodities division.
Bank shares were mixed with Wells down 4%, JPM down 0.5% and Citi up 3.5%.
Worries about the impact of artificial intelligence on software companies and the uncertain outcome of the Iran war have rattled financial markets in the first quarter, triggering repeated bouts of selloffs that kept trading desks busy.
Market jitters intensified in March with the outbreak of the U.S.–Israeli war with Iran. Concerns over oil supply disruptions from a blockage of the Strait of Hormuz, which carries one-fifth of global oil, stoked stagflation fears. Fears around artificial intelligence disrupting software companies and private credit worries unnerved investors.
CAUTION ON ECONOMIC RISK, CONSUMER RESILIENCE
Banks noted caution about economic risks even as they said consumers and households were resilient, with JPM CEO Jamie Dimon warning of mounting global economic risks.
“There is an increasingly complex set of risks – such as geopolitical tensions and wars … While we cannot predict how these risks and uncertainties will ultimately play out, they are significant and they reinforce why we prepare the firm for a wide range of environments,” Dimon said in a statement.
He said while labor markets have softened, conditions do not appear to be worsening and consumers continue to spend.
“The U.S. economy has remained resilient,” Dimon said.
JPM’s CFO said consumer spending growth was continuing above last year’s pace.
Wells Fargo Chief Financial Officer Mike Santomassimo said consumers were probably spending between 25% and 30% more on gas than they did before the conflict. The bank earns about 40% of its revenue from consumer banking.
“Overall spend continues to be quite resilient and quite strong. We’re not seeing the overall spend level trends change really with any significance,” Santomassimo told reporters.
Volatility and concerns stemming from the Iran conflict could also impact M&A and IPOs. Citi’s Chief Financial Officer Gonzalo Luchetti said if the conflict remains in place for a very long time, it could impact the second half-year pipeline, but he said it was still a “very active pipeline at this point.”
Citi’s CEO Jane Fraser said that the longer the conflict goes on, “the more pronounced the second or third order impacts are going to be around the world,” citing inflation now a greater risk.
Citi also said it was constantly stress testing its portfolios, including in the space of private credit, which has seen industry turbulence this year.
(Saeed Azhar and Tatiana Bautzer in New York, Manya Saini, Arasu Kannagi Basil and Prakhar Srivastava in Bengaluru, Nivedita Balu in Toronto; Additional reporting by Saqib Iqbal Ahmed; Editing by Megan Davies and Nick Zieminski)
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