Another quarter, another failure by banks to do what they used to do so well under the Fed's QE: grow revenue.
Speaking at a banking conference in New York, the two largest US banks have warned that the trading slump which started about a year ago, will continue.
Citigroup warned that second quarter revenue has declined compared to last year, following the largest US bank, JPMorgan, in reporting a downturn for the high profit margin business. And in a quarter in which the S&P was trading at all time highs less than a month ago, Citigroup CEO Michael Corbat found no shortage of scapegoats on which to blame the trading slump, including the relapse in the trade war, Brexit as wellas escalating tension between the U.S. and Ira, all of which have reportedly weighed on market sentiment in recent weeks.
"Clearly, trading revenue and wallets right now are down," Citi's CEO said quoted by Bloomberg, adding that "in periods of uncertainty, things tend to become pretty muted."
Traders hoping to get some more clarity will have to wait about 6 weeks, when the banks report Q2 earnings, as Corbat declined to give specific number about his firm’s performance in Q2, instead deflecting to Chief Financial Officer Mark Mason, who would "give more details in coming weeks." Yesterday, JPMorgan CEO Jamie Dimon warned this his firm's trading revenue had dropped 4% to 5% in the first two months of the second quarter, while noting that “the next month could dramatically change that.” It wasn't clear if the "change" would be higher or lower.
As part of his own attempt at optimistic spin, Citi's Corbat said the company is focused on developing better ties between its trading and treasury-management units to improve the experience for corporate customers.
"We’ll likely continue to take share," Corbat said. "We’ll go up and down with the market. But I would expect that we should either match, or, probably more importantly, outperform over time."
Bizarrely, Corbat also said Wall Street would begin to benefit as central banks around the world step back from quantitative easing, or bond buying to stimulate economic growth, "because the policy change will create room for banks to step in and provide additional liquidity or financing." We say bizarrely because the last time central banks tried to step back from quantitative easing, and a global coordinated tightening ensured, the S&P slumped into a brief bear market and banks reported atrocious earnings, which also underscores the bigger problem faced by banks: no matter the environment, they seem unable to grow revenue any more. Perhaps it is time to acknowledge the reason: there are simply no longer enough muppets out there trading day in and out in what, to even the most clueless, is a clearly rigged and manipulated market, and where if central banks truly step back the outcome would be a crash.