Wall Street Predicts Record Trading Revenue amid Market Jitters

It’s déjà vu for big banks: Last April, blockbuster earnings were overshadowed by the specter of a trade war; this year, record margins are being eclipsed by the reality of a shooting one. 

Goldman Sachs kicks off first-quarter reporting today, followed by JPMorgan Chase, Wells Fargo and Citigroup on Tuesday. Bank of America and Morgan Stanley are up on Wednesday. 

Bank execs have a lot on their mind. Besides the war and Friday’s skunky CPI report, Wall Street continues to wrestle with what artificial intelligence disruption could mean for the entire economy. And don’t forget the private credit market woes that were top of mind before the Iran War.

As JPMorgan Chase CEO Jamie Dimon said in his letter to shareholders last week, “Some of the larger risks are much like tectonic plates, always moving and periodically causing earthquakes and volcanoes when they crash into each other.” 

On the Bright Side  

Still, banks are likely to offer the markets some relief. Anxious investors trade more, which is good for them: The largest banks are expected to post a record $18 billion in stock-trading revenue for the quarter ending March 31, according to estimates from Bloomberg. That’s a roughly 14% increase from the same period last year. The analysts estimate $4.79 billion from Goldman Sachs, $4.67 billion from Morgan Stanley and nearly $4.4 billion from JPMorgan Chase. 

But net interest income (or NII, the difference between what banks earn from charging interest on loans and what they pay depositors) will be the biggest factor to keep an eye on, Sean Dunlop, director of equity research at Morningstar, told The Daily Upside: 

• Loan demand has held up better than the macro backdrop would have implied. “It’s worth watching whether that’s balance sheet pre-positioning ahead of regulatory reform, businesses stockpiling cash or something more durable,” Dunlop says. The market is also predicting that the Federal Reserve won’t cut interest rates this year, which typically helps buoy what banks can charge on their loans, and that easing regulatory standards may free some capital for lending. 
• The average analyst estimates compiled by LSEG for net interest income growth in the first quarter range from 6.89% for Wells Fargo to 10.67% for Citigroup. 

Bargain Buy: Morningstar’s top stock pick among the major banks is Bank of America. “Trading at roughly a 15% discount to fair value, it’s essentially a junior varsity JPM at a compelling price,” Dunlop says.