Trading Drives Bank Revenues as Earnings Seasons Kicks Off

The Q1 2020 earnings season kicked off mid-month in January with some of the large financials posting better than expected results. J.P. Morgan Chase, Citi Bank, Goldman Sachs and Bank of America all came in with top and bottom line results that were better than expected driven by strong revenues in fixed income trading. Wells Fargo was the only one of the major financial institutions that bucked the trend missing both on revenue and earnings. 

How Did the Banks Beat on the Top and Bottom Line?

The large financials beat on earnings and revenue because of better than expected results from there fixed income and equity department. Fixed income includes currency trading and commodity trading. These global department saw volatility in the Q4 of 2019, which allowed them to take robust bets on the underlying assets they trade and notch up heavy gains.

J.P Morgan Chase Beats 

J.P. Morgan Chase reported top and bottom line numbers that were better than expected mainly driven by a strong rebound in trading revenue in the Q4. The bank reported Q4 earnings that rose 21% to $8.52 billion, or $2.57 a share, compared with the $2.35 estimate. Managed revenue climbed 9% to $29.2 billion, compared with the $27.94 billion estimate. 

Earnings at the investment bank rose 48% to $2.9 billion, mainly on trading results. Bond trading revenue surged 86% to $3.4 billion, exceeding the $2.61 billion estimate by roughly $800 million, as fixed-income desks notched up huge gains. Stock traders posted a 15% increase in revenue to $1.5 billion, compared with the $1.37 billion estimate.

Other Banks Also Say Gains

In addition to J.P. Morgan experience robust gains in the Q4, both Goldman Sachs and Bank of American experience solid top and bottom line results. Bank of America Q4 profit of $7 billion, down 4% year over year, or $0.74 a share, which was an unexpected 6% increase helped by a reduction in outstanding shares. That figure exceeded the $0.68 estimate. Revenue fell 1% to $22.5 billion, edging out the $22.35 billion estimate.

Nearly all the gains were focused in the trading operations. Of the bankís three main divisions, only its global markets business posted a quarterly increase in profit. The firmís Wall Street trading division posted a 13% increase in earnings to $574 million as bond trading revenue surged 25% to $1.8 billion, exceeding the $1.68 billion estimate. Bond revenue also includes currencies and commodities. Stock trading produced $1 billion in revenue, a 4% decline that was just under the $1.07 billion estimate. 

The impact of lower interest rates was felt widely at Bank of America. Companywide net interest income fell 3% to $12.3 billion, and the bankís net interest margin fell 17 basis points to 2.35% just under the 2.36% estimate.

Goldman Sachs also beat on earnings and revenues. Most of the gains were in the fixed income and asset management. The Bank reported revenues of $9.995 billion compared to expectations of $8.505 billion.