Worst Quarter In Years Shaping Up For Hedge Funds Formerly Known As Bank Holding Companies
The third quarter will close in 16 market days and unfortunately for the TBTFs this means that Q3 will be the most disappointing quarter in years, unless market volume picks up dramatically in the next 3 weeks. Alas, due to the double whammy of the flattest yield curve in years, and the wholesale dereliction of stock trading by retail and other investor classes, the recently key profit drivers for Wall Street banks will be most disappointing. Since M&A has not picked up, banks will be hoping that underwriting advisory can fill in the hole. Alas, IPOs never managed to get out of the gate, which means the fate of EPS targets being met lies in IG and HY bond issuance proceeds. However, with underwriting proceeds of just 1% in the case of the former, it will take a lot for this category to recoup even a small portion of lost revenue in the much more profitable market making/flow/prop category. Lastly, the old trick of reducing NPL provisions will not work this time. All in all, if you run into your banks CEO/CFO/COO, stay out of their way: most likely they are not having a good day.
The chart below shows the ridiculously low volume on the NYSE over the past two years. Note the ever declining volume, and also the Q3 average volume which is about 20% lower than a year ago. The same is most certainly true for cash and CDS trading, as many hedge funds have already thrown in the towel.