Why Bank of America’s FICC trading results are (slightly) overrated
It’s difficult to call a bank’s results ‘overrated’ when it sees a 43% decrease in profit, based mainly on large one-time litigation expenses, but the one main highlight that came out of Bank of America’s second quarter results were its FICC numbers.
Excluding an accounting adjustment, fixed-income, currencies and commodities trading revenue was up 5%, a relatively shocking number considering the ongoing lack of action in the markets and 'macro factors' rocking the FICC desks of most competitors. In comparison, fixed income revenue was down 10% at Goldman Sachs, 12% at Citi and 15% at JPMorgan, respectively.
So, how’d they do it? A couple things to notice. First off, much of Bank of America’s FICC success was derived from improved conditions in mortgages and munis. Like other competitors, Bank of America saw declines in foreign exchange and commodities revenue – areas that BofA doesn’t rely on as much as a Goldman or a JPMorgan. Saying Bank of America beat them at their own game would be a massive overstatement.
Secondly, the results are being compared year-over-year. Chief Financial Officer Bruce Thompson acknowledged that the FICC trading revenue increase was aided by “weaker second-quarter levels last year.” The bank struggled in 2013 adjusting to the Fed's bond buying program.
Bank of America also suffered through a sluggish quarter when it came to equities trading – down 14% compared to the second quarter of 2013. That’s not far off from Goldman Sachs and JPMorgan, which were down 13% and 10% respectively in equities, but it is a slightly bigger drop nonetheless.
Excluding litigation and other one-off costs, expenses were down $700m at Bank of America, due in part to lower sales and trading incentives, according to Thompson.
In other news, Bank of America said that it would increase the hiring of analysts and associates by as much as 40% in an effort to limit the workload of junior bankers. Headcount was actually down 2.3% during the second quarter, but much of that had to do with reductions in the bank’s mortgage unit.