Jefferies, Deutsche Bank, and now Citi and JPMorgan are all facing a collapse in trading volumes as Bloomberg reports the two banks brace for a fourth straight drop in first-quarter trading revenues – a period of the year when the largest investment banks typically earn the most from that business. “It sounds like more bloodletting on Wall Street,” warns one analyst, as Citi expects trading revenue to drop by a “high mid-teens” percentage.
Citigroup finance chief John Gerspach said yesterday his firm expects trading revenue to drop by a “high mid-teens” percentage, less than a week after JPMorgan Chief Executive Officer Jamie Dimon said revenue from equities and fixed income was down about 15 percent.
If trading at the nine largest firms slumps that much, it would extend the slide from 2010’s first quarter to 36 percent.
“It sounds like more bloodletting on Wall Street,” said Jeff Davis, a managing director for the financial-institutions group at advisory firm Mercer Capital in Nashville, Tennessee.
Trading results have been hurt by a slowdown in the fixed-income business, which accounts for an average 80 percent of markets revenue at Citigroup, Chief Financial Officer Gerspach, 60, said yesterday at a presentation in Orlando, Florida.
Lower levels of client activity in a similar business pressured JPMorgan’s results, said Dimon, 57.
Jefferies Group LLC, the Wall Street firm owned by Leucadia National Corp., said today that trading revenue for the three months ended Feb. 28 was $450 million. That was 11 percent less than what it reported a year earlier.
In the past four years, those firms have generated an average 37 percent of their annual trading revenue during the first three months.
So who is buying this market up at new highs? Well, if CNBC is to be believed, the retail investor is back… Howard Marks warns:
“When things are rollicking and the market is permitting low-quality issuers to issue debt, that’s when you need a lot of caution,” Marks said in a telephone interview. “You have to apply a lot of discernment.”