Russia-Ukraine war, a surge in oil pricesand Federal Reserve rate hikes contributed to upheaval in the markets with the S&P 500 index recording its third-worst half year since 1945
A surge in trading revenue powered by volatile markets should partially offset a slump in M&A and equity and debt deals when Wall Street banks report second-quarter earnings this month.
“This is the type of quarter that justifies Wall Street’s reason to exist: getting in the middle of many counterparties to help them manage and trade their risk,” said Mike Mayo, senior banking analyst at Wells Fargo. “We’ve already had guidance for trading to be up 15% to 25% year over year for the largest banks.”
The FICC business has benefited in particular because the Ukraine conflict has pushed up commodities prices, sending investors scrambling to cover their exposure, while central bank rate hikes aimed at dampening inflation have also driven fixed-income and currency trading. In contrast, Wall Street bank investment bank revenue is expected to suffer from a slump in global equity capital market transactions, which dropped nearly 69% to $263.8 billion in the first half of the year on the same period in 2021, while debt deals slumped by nearly 26%, data from Dealogic showed.
“The ability to get higher fees from has been very difficult so I would say more of the same for the second half of the year for investment banking.” Goldman Sachs and Morgan Stanley overall are expected to report a 51% and 17% drop in profit, respectively, partly due to the decline in deals, according to Refinitiv I/B/E/S data.
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