Bulge Equity Revenues Down in Second Quarter


Financial reporting from major investment banks is reflecting the worsened equities market conditions in the second quarter.  US equity market volumes were down 12.9% in the second quarter, and bulge bracket banks are reporting declines in equity market revenues for the quarter.  For the five bulge banks reporting to date, equity revenues were down 5% in the second quarter.

Bank of America cited low volatility which depressed secondary market volumes and reduced client activity.  Goldman said that lower volumes were particularly pronounced in the U.S. and Asia.  JP Morgan blamed lower equity derivatives revenue.

Equities revenues for Bank of America (-12%), Citi (-15%) and JP Morgan (-10%) declined in line with US equity volumes.  Morgan Stanley (+4%) and Goldman Sachs (+1%) bucked the trend with offsetting increases in their prime brokerage businesses.  Morgan Stanley said that “ongoing strength in prime brokerage [was] offset by lower revenues in derivatives due to declines in client volumes and volatility.”

Goldman Sachs, which reports more detail on its equity business, showed that its prime brokerage business was up 6% and market making was up 16%, cancelling out a 9% decline in its cash equities commission revenues.

Bulge firms still to report: Barclays, Credit Suisse, Deutsche Bank and UBS.

Separately, U.S. regional broker FBR & Co. said its cash equities revenue increased 2.7% quarter-over-quarter, marking the third consecutive quarterly increase in equities revenue.

Our Take

An upbeat first quarter fanned hopes that last year’s improved environment would continue for 2014.  The second quarter damped optimism, especially since all else being equal seasonality tends to suppress activity in the third and fourth quarters.  Nevertheless, current levels remain higher than the lows of 2011-2 supporting the view that the overall trend has stabilized.


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