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Bond Trading Grinds To A Halt: Goldman Set To Report Weakest Q1 Since 2005; Revenues Down As Much As 25% Elsewhere

Tyler Durden's picture


The topic of disappearing bond market liquidity and volume has been beaten to death on this site over the past several years. Nothing new here: thanks to the Fed's central-planning mission creep which has made efficient and fair markets into a surreal mockery, first equity, and then fixed income trading has been made irrelevant as there is no longer such a thing as price discovery, and with it have disappeared liquidity in the two largest equity and fixed income markets in the world.

It got so bad even the TBAC was openly complaining to the Treasury last August that there is no longer a bond market in the conventional sense, with the clear implication that since there are barely any fixed income transactions, Wall Street can't make money on either flow or prop trading side of things (and also warned that if and when the selling starts in earnest, watch out below). Alas, since Wall Street was explicitly fighting the Fed (remember: the main reason there is no volume is because nobody is selling) Wall Street has once again lost, and despite its appeals, the time to pay the piper has come. Said payment will be taken out of bank Q1 earnings which as everyone knows, will continue the declining trend seen in recent years (so much for that whole Net Interest Margin fable), but to learn just how bad, we go to the FT which reports that fixed income groups across Wall Street "are set for their worst start to the year since before the financial crisis, with revenue declines of up to 25%."

The punchline: "Analysts now expect Goldman Sachs to record its weakest first quarter since 2005 and JPMorgan Chase and Bank of America are forecast to see their lowest revenues since they bought Bear Stearns and Merrill Lynch, respectively, in 2008."

More from FT:

The weakness is expected to be even more severe among European banks such as Deutsche Bank and Credit Suisse, which are looking to meet new capital requirements by shrinking their balance sheets. “Anecdotally it seems Europeans are losing most share in the US itself and so are losing global diversification,” said Huw van Steenis, analyst at Morgan Stanley.


Citigroup and JPMorgan Chase have warned publicly that fixed income revenues – the engine of most investment banks’ profits since 2000 – will be down by double digits when they report first-quarter earnings next month. But other banks privately warn that their year-on-year declines could exceed 25 per cent after both institutional investors and banks shied away from trading. The first quarter is traditionally a high point for revenues.


The top 10 banks are expected to make a combined $24.8bn of revenues in fixed income trading, which includes bonds, currencies and commodities, according to Morgan Stanley and Credit Suisse estimates, more than 40 per cent below the first quarter of 2009 when the market rebounded sharply from the crisis.


Christian Bolu, analyst at Credit Suisse, estimated that US government bond trading volumes are down about 8 per cent so far this year compared with the same period in 2013. Trading of mortgage-backed securities backed by the US government is down 41 per cent, while corporate bond trading has increased by 12 per cent.

And why wouldn't it be? Recall that not even HFTs make incremental money in stocks and bonds, having been forced into that wild west of FX and options (and the result is that even cash cows like Virtu are now selling equity, as the trading top is obviously in). Who do banks have to thank for this? Why the Fed of course, which has made volatility a thing of the past, and with it, has essentially made selling of any kind borderline illegal.

Also keepin mind that 2013 wasn't exactly a blockbuster year: as was reported today by NY State, total 2013 Wall Street profits were $16.7 billion, down 30% from 2012, and the second lowest since the Lehman collapse. At this rate 2014 will be the second year in a row in which Wall Street profits have declined (if not bonuses), and may be the worst year for bank profitability since 2008.

So what happens next:

Two of the top five fixed income divisions told the Financial Times they expected to respond by cutting more jobs because the market is worse than expected, with traders blaming patchy macroeconomic data, interest rate uncertainty, regulation that limits risk taking and worries about the situation in Ukraine.


“Effectively, the casino is empty this quarter,” said Brad Hintz, analyst at AllianceBernstein.

The good news: as the NY State comptroller reported today, 2013 bonuses of $26.7 billion were the highest since the Lehman crisis. So for everyone who has a job: enjoy your near-record bonus. For everyone else, repeat after us: "but... but... the recovery"

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Wed, 03/12/2014 - 11:50 | 4539035 Theta_Burn
Theta_Burn's picture


Wed, 03/12/2014 - 12:25 | 4539196 NotApplicable
NotApplicable's picture

So much for the myth of the "bond vigilantes."

All your Treasurys are belong to Yellen.

Wed, 03/12/2014 - 12:43 | 4539265 SheepDog-One
SheepDog-One's picture

And the bonds are just as worthless as any other pile of paper! Enjoy owning all those!

Wed, 03/12/2014 - 12:46 | 4539272 X_mloclaM
X_mloclaM's picture

all that valuation stuf depends upon "the nerves and hysteria and even the digestions" of private investors tho TD...

For my own part I am now somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest. I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organizing investment (p. 164)

Wed, 03/12/2014 - 11:50 | 4539036 DrDinkus
DrDinkus's picture

nothing some MOAR WAR cant fix

Wed, 03/12/2014 - 11:50 | 4539041 PlusTic
PlusTic's picture

Good, it couldn't happen to abigger group of sucmbags...hope theri trading revenue goes to zero across the whole FICC division

Wed, 03/12/2014 - 11:52 | 4539052 Fidel Sarcastro
Fidel Sarcastro's picture

No worries...uh, Yellen's got their back.

Wed, 03/12/2014 - 11:53 | 4539053 NoDebt
NoDebt's picture

So, the Fed's policies are HURTING banks?  If that's true, I just became SOOOO confused SOOOO fast, I might never recover.

Wed, 03/12/2014 - 12:52 | 4539146 Rainman
Rainman's picture

Taper cut 25% , bank revenue cut 25% ....what so confusing about that ?

Wed, 03/12/2014 - 11:55 | 4539072 gjp
gjp's picture

That must be why JPM and GS stocks are within spitting distance of multi-year highs (and all-time highs in the case of JPM).

Wed, 03/12/2014 - 12:16 | 4539149 Emergency Ward
Emergency Ward's picture

Expect a breakout gap up when the said reports are actually issued.  (Blame it on the weather, which is known to be extreme.)

Wed, 03/12/2014 - 11:58 | 4539081 shanearthur
shanearthur's picture

I'm a layman, but let me see if I have this correct:

Banks can conjure money out of thin air and charge the government interest. Then they can fractional reserve that dough 9 times WITH INTEREST, and after all that, THEY CAN'T MAKE MONEY? That's seriously corrupt and disfunctional if banks can't survive.

Wed, 03/12/2014 - 12:03 | 4539105 Uncle Remus
Uncle Remus's picture

The crux of the shekel.

Wed, 03/12/2014 - 12:28 | 4539205 NotApplicable
NotApplicable's picture

Worse yet, fractional reserve ratios are approaching zero, so that "9 times" is really much, much more.

A 10% reserve ratio only lives in schoolbooks.

Wed, 03/12/2014 - 11:59 | 4539087 buzzsaw99
buzzsaw99's picture

Three words: Loan loss reserves. Book it Dan-O.

Wed, 03/12/2014 - 12:10 | 4539132 drinkin koolaid
drinkin koolaid's picture

But that's not what Shriveled Dick Bove told me.

Wed, 03/12/2014 - 12:14 | 4539143 Rising Sun
Rising Sun's picture

GS and JPM can do what HSBC does now - launder cash for the drug cartels - that should help the bottom line - it did for HSBC


and since we all know that HSBC is caught, it's all okay and HSBC can continue laundering drug cartel cash


it's all out in the open and so it's all fair now - get it???


GET ME THE FUCK OFF THIS FUCKING PLANET!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Wed, 03/12/2014 - 12:22 | 4539177 Dadburnitpa
Dadburnitpa's picture

Every tit runs dry.  Some last longer than others, but in the end they are all desiccated husks.

Wed, 03/12/2014 - 12:24 | 4539191 ak_khanna
ak_khanna's picture

The too big to fail banks are loosing business because rest of the population is realizing their role in manipulating the stock, bond, currency and commodity markets using the billions of dollars of gift from the FED and high frequency trading. Hence most of the savers and speculators are unwilling to invest or trade in these markets. This is leading to the fall in trading revenues and profits of these parasites, so called banks. 

We seriously need to get back the Glass Stegall Act before the bankers swallow up the savings of the majority of the population and push them towards a lifetime of financial debt and suffering.


Wed, 03/12/2014 - 12:30 | 4539216 NotApplicable
NotApplicable's picture

While banksters may be losing business, some of them are more than making up for it by gaining title to ALL tangible assets.

That's why they're richer than you.

Wed, 03/12/2014 - 15:34 | 4539982 LooseLee
LooseLee's picture

They are richer than 'us' because they are criminals and do not play by the rules (allowed by the regulators and law makers). Wake up, people. Starve the beast!

Wed, 03/12/2014 - 12:31 | 4539222 mrblah
mrblah's picture

BOTSN < Buy On The Shit News

Wed, 03/12/2014 - 12:42 | 4539259 venturen
venturen's picture

Awe poor criminals money printer at the FED winding down?

Wed, 03/12/2014 - 12:42 | 4539261 vote_libertaria...
vote_libertarian_party's picture

Why should they (primary dealers) trade bonds for penny gains when they can just sell them to the Fed for par+.

Wed, 03/12/2014 - 12:45 | 4539269 ejmoosa
ejmoosa's picture

How do I, a mild mannered investor, know that the shit has still not hit the fan, and that the TBTF banks are gonna fail?

I look and see all the new construction flowing into commercial real estate in my area (one of the wealthier areas in Georgia), despite more empty commercial real estate today than we had 1,2,3,4,5,6 or 7 years ago.

WTF approves these loans when it is clear the space is not needed at this time?

Wed, 03/12/2014 - 14:53 | 4539789 Ban KKiller
Ban KKiller's picture

Well, take a look at this and tell me the big banks are still not and will never be out of the woods when it comes to litigation costs.

 http://www.structuredfinancelitigation.com/  As a wanna be bank killer I love this site. Big dogs suing big dogs. I copy their arguments and charges! Fucking beauty...


Wed, 03/12/2014 - 17:29 | 4540451 WillyGroper
WillyGroper's picture

higher end retail & gentrification is going to push your property taxes up until you can no longer afford the tax parasite for your free & clear home. 

remember, Citi also owns Travelers insurance>>>>engineered severe weather>>>>>higher rates>>>these rodents are hitting us on multiple fronts. 

Commerical building is going great guns in my state too, while miles of strip malls are blighted. 

today my power company wants a rate increase based on their science for get this...SOLAR FLARES. and this after they just got an F'n 12% increase.

Wed, 03/12/2014 - 12:46 | 4539273 slightlyskeptical
slightlyskeptical's picture

Keep in mind we are talking about declines in Bond Trading revenues and not total bank revenues.

PIMCO must be really suffering.

Wed, 03/12/2014 - 12:52 | 4539291 ejmoosa
ejmoosa's picture

Keep in mind these are the year over year rate of profit growth (per share) in Valueline's banking sector:

Most recent quarter: 3.91%

-1                         -2.03%

-2                         18.98%

-3                         14.99%

-4                         26.63%

-5                         21.11%

-6                         11.30%

-7                         16.79%


That covers two years and tells me that there's trouble in paradise. 

Wed, 03/12/2014 - 13:03 | 4539334 BeerMe
BeerMe's picture

It isn't just these banks that are having weak Q1s.

Wed, 03/12/2014 - 13:27 | 4539414 Cacete de Ouro
Cacete de Ouro's picture

"The London Whale has been well and truly harpooned. Trust me."

Moby Dimon

Wed, 03/12/2014 - 13:48 | 4539490 ClowardPiven2016
ClowardPiven2016's picture

Bernie Madoff for Treasury Secretary

Wed, 03/12/2014 - 14:56 | 4539810 Ban KKiller
Ban KKiller's picture

Gonna plant some greens in the covered garden. Plants don't lie to me...

Is there an honest accountant left in NY? Ooops...meant "world". 

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