Ok, so it’s now clear that FICC trading was an across-the-board weak spot for Wall Street in Q4. Folks were apparently not very adept at navigating the volatility.
BofAML turned in lackluster FICC results on Wednesday morning, hot on the heels of similar misses from Citi and JPMorgan earlier this week and just minutes later, Goldman followed suit. FICC sales and trading revenue at the bank came in at $822 million in Q4, versus estimates of $976.3 million. That’s an 18% YoY drop and is blamed on wider credit spreads which made for a “challenging” environment. Goldman says net revenues in commodities, currencies and mortgages were unchanged – basically.
That is the worst FICC revenue number since 2008.
In equities, revenues jumped 17% to $1.6 billion – that’s basically in line. The bank cites “significantly higher net revenues in cash products.” Derivatives were unchanged.
Overall, trading revenue of $2.43 billion was up 2% YoY and down 22% sequentially. Consensus was $2.5 billion.
The headline numbers are good. EPS was $6.04 and adjusted EPS was $4.83 (est. $4.53). Revenue of $8.08 billion handily topped consensus ($7.54 billion).
Both debt and equity underwriting missed, coming in at $528 million (est. $630 million) and $315 million (est. $328 million).
This looks like a win (from the accompanying materials):
Net revenues in Financial Advisory were $1.20 billion, 56% higher than the fourth quarter of 2017, reflecting an increase in industry-wide completed mergers and acquisitions volumes.
As far as I can tell, that $1.2 billion figure is well ahead of even optimistic forecasts.
Credit loss provisions are $222 million, that’s down from Q4 of 2017, but there’s a line in there about “consumer loan growth” that you can parse for yourself:
The decrease compared with the fourth quarter of 2017 reflected an impairment of a secured loan in the fourth quarter of 2017, partially offset by higher provision for credit losses primarily related to consumer loan growth in the fourth quarter of 2018.
Operating expenses of $5.15 billion for Q4 look on par with estimates. The jump from last year is obviously litigation related.
Solomon is trying to allay 1MDB fears with this rather upbeat take:
We are pleased with our performance for the year, achieving stronger top and bottom line results despite a challenging backdrop for our market-making businesses in the second half. For the year, we delivered double-digit revenue growth, the highest earnings per share in the firm’s history and the strongest return on equity since 2009. We are confident that we are well positioned to support an even larger universe of clients, continue to diversify our revenue mix and deliver strong returns for our shareholders in the years ahead.
Ok, sure.
Whatever the case, the market appears to be in a good mood re: bank results on Wednesday, perhaps having learned from sharp reversals in Citi and JPMorgan shares earlier this week. Goldman is surging in the premarket, alongside Bank of America.
(Bloomberg)
Have you remarked that FICC is down each quarter, not only Q4? I believe what they say is true, “wider credit spreads” is an issue, it’s not only volatility. FICC was down even in Q3, quiet quarter. Market makers have trouble in this poor liquidity environment.
I cover the big bank results every quarter. they’re all in the archive.
I feel like the overall earning season results end up being opposite of the big bank results…big banks good good everyone else does bad or the opposite…at least that’s my hope…I’m 100% cash so hoping for a downturn
The global economic slowdown story, and with that, lower earnings expectations is finally reaching the markets, it seems. And why not? Lower earnings means less revenue, higher borrowing risk, and higher P/E.
QE and lower interest rates aren’t going to fix any of that if this better-to-burn-out-than-fade-away economy in the US can’t find its way towards earnings growth in a sustainable way.
Or maybe not. There’s always war I suppose, but the world risks nuclear holocaust for it now. Plan B can’t be worse than that, can it?