Increased market volatility, particularly in fixed-income, likely means that securities revenue for the big Wall Street banks will be weaker in the second half of 2013, says Fitch Ratings in a new report.
The rating agency says that securities revenue at the 12 big global trading and universal banks declined in the second quarter “as market dynamics deteriorated at the end of the quarter with a rise in interest rate expectations and credit spreads, and fixed-income market conditions have remained challenging since then.”
Fitch says that it doesn’t expect material inventory losses, even if volatility rises for prolonged periods. “Nevertheless, there is likely to be pressure on capital-market earnings from the uncertainty about the timing and speed at which the Federal Reserve tapers its quantitative easing program,” it says. “Also, reduced investor confidence in the US budgetary process and in the prospect of the debt ceiling being raised in a timely manner could result in increased market volatility, which would be likely to be negative for the [banks’] earnings.”
Some banks will be less affected, depending on business mix, it says; noting that it expects equity trading revenue to be more resilient in the second half, “provided there are no major shocks.” Additionally, Fitch says that earnings from non-securities businesses, including commercial banking, and wealth and asset management, should support bank profits.