January 24, 2018, 1:47 am
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Light trading volume seen as black spot in banks’ results

Trading revenue was likely to be a black spot in US banks’ third-quarter earnings, as volatility remained low, and investors have little hope the fourth quarter will be much better.

US banks’ equity trading volume has been hit by record lows in volatility as investors have less reason to trade if stocks are not moving much. At the end of the third quarter, the quarterly average for the CBOE market volatility index was at its lowest ever. 

On top of this, traders said that equity trading had also been dampened by an ongoing rise in popularity of passive investment instruments such as exchange traded funds over active investing.

Trading volume for fixed income, currencies and commodities (FICC) was also hurt by weak volatility in the quarter. Making matters worse, banks face a difficult comparison with the year-ago quarter when investors were busy reacting to the Brexit vote and preparing for the US election.

“August was very slow. We saw some fits and starts from different headlines in September,” said Thomas Roth, head of US Treasury trading at MUFG Securities America in New York.

While S&P banks were still expected to report overall earnings per share growth of 6.4 percent and revenue growth of 1 percent, according to Thomson Reuters data, analysts pared their estimates during the quarter as expectations for trading revenue declined.

Revenue estimates were 2.2 percent lower than where they were July 1 while earnings estimates were 1.8 percent lower.

Banks in aggregate will report a 16 percent decline in trading revenue from the year-ago quarter and a 7 percent decline from the second quarter, according to KBW estimates, following a 10 percent year-over year drop in trading revenue for the second-quarter. - Reuters
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