With the big Wall Street banks poised to start reporting their quarterly earnings next week, Moody’s Ratings says underlying market conditions point to stronger results from the banks in the group.
The rating agency noted that the U.S.-based global investment banks, including Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Wells Fargo & Co., begin reporting third-quarter results on Oct. 11.
Moody’s said it expects the banks’ third-quarter reports “will show strong trading revenue and improvements in investment banking revenue compared with a year ago.”
In terms of investment banking, both debt and equities new issue activity rose in the third quarter, while merger-and-acquisition transactions were flat, the rating agency said.
“Debt issuance volume systemwide was higher than a year ago, with the largest increases in investment-grade and high-yield bonds,” it said.
Among equities, secondary offerings “maintained positive momentum, and IPOs were slightly higher year on year,” it said.
As for trading, Moody’s reported that volumes rose strongly year over year, and that equities market volatility and spreads increased, which signals that the banks likely enjoyed “more profitable trading opportunities.”
“In credit exchange-traded funds (ETFs) and fixed income, currencies and commodities (FICC) options and futures products, trading volumes were at or near record highs and accompanied by spikes in implied volatility across investment-grade and high-yield credit markets,” the report said. It added that trading volumes were also strong in equites and equities derivatives markets.
Equities market volatility also “had significant spikes” in the third quarter, and bid/ask spreads widened too, Moody’s said.
“Volatility and spreads are generally positively correlated and can boost revenue for banks that are able to navigate the markets and provide liquidity,” it said. “Based on these indicators, we expect growth in [third-quarter] equities trading revenue from a year ago.”