Optimism wanes as traders expect another depressed fourth quarter
Alas, the surprise rebound in trading revenue for big banks during the third quarter appears to have been event-driven, rather than some systematic rebound that many were hoping would continue. Trading revenues will again tumble during Q4, and things may get worse before the markets eventually reach a new normal.
Both Bank of America and Citigroup warned on Tuesday that trading totals for the final three months of the year are likely to disappoint. Citi Chief Executive Michael Corbat said the bank expects a 5% dip in trading revenue compared to last year’s fourth quarter. Bank of America CEO Brian Moynihan didn’t provide a granular approximation, but did say that revenue will be down from Q3 and year-over-year.
Frankly, the news isn’t all that surprising but is nonetheless deflating for equities and fixed income traders who saw atypical spikes in activity and volatility during the third quarter that brought some hope. But the shot in the arm during Q3 appeared to be driven by one-off events, including a rebound in Europe and the sudden exit of Bill Gross from Pimco, which woke up the otherwise sleepy bond market.
Likely, other Wall Street banks’ earnings reports will mirror those of Citi and Bank of America. In fact, they could be worse. J.P. Morgan and Goldman Sachs have historically relied more heavily on their trading desks than rivals. Expect the culling of traders to continue and compensation to fall further, particularly in fixed income. Corbat said Citi “didn’t escape” the sharp moves in FICC during the first two months of the quarter, according to the Wall Street Journal.
Meanwhile, Citi has some other problems. Corbat said the bank will incur a $3.5 billion charge for its fourth-quarter, split between restructuring and litigation costs. Still, the quarter will be "marginally profitable,” he said.
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Working for Goldman, Morgan Stanley or a boutique is the fastest route to the buy-side. Is this a compliment or an alarming trend for two banks that are losing more than half their analyst classes to private equity firms and hedge funds?
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Are you quietly atrophying? Next time you apply for a job, will you be universally rejected? These are the signs.
M&A Pump Fakes (Financial News)
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Changes at RBC Wealth (Bloomberg)
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Jefferies healthcare-focused rainmaker Ben Lorello reportedly caused a stir last week when he replied-all to a company-wide email saying that he would be spending his Saturday interviewing potential interns, and asked others to follow his lead. They did, and then he no-showed.
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Buzz Around the Office
The owner of “Grumpy Cat,” which is quite literally nothing but a grumpy-looking feline, has made roughly $100 million over the last two years from appearances in advertisements and books. RealGrumpyCat has 256,000 followers on Twitter and is planning a line of iced coffee called "Grumpaccino." The world is a cruel, cruel place.
Quote of the Day: “Handshakes matter, people matter, but turnover happens, so get it in writing.” – Sallie Krawcheck, former president of wealth management of Bank of America on her biggest mistake
