How did the U.S. banking industry look in the first quarter of 2016? According to the Financial Times, the six biggest U.S. banks have suffered their steepest decline in quarterly revenues since 2011, after a profound slump on Wall Street overshadowed a boost from their consumer businesses.
JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo generated total revenues of $98 billion in the first quarter, down 9 percent from a year earlier. This is the steepest fall in five years, according to a Financial Times analysis of Bloomberg data.
Deep cost cuts failed to counteract the fall in revenue so the six lenders also saw their collective net income plummet 24 percent year over year to $18 billion. Goldman Sachs became the latest victim of the slowdown in trading and dealmaking when the investment bank posted its lowest first quarter revenue since Lloyd Blankfein became chief executive in 2006. Net earnings dropped more than half, echoing a similar decline at its competitor Morgan Stanley.
The aggregate figures for the big six banks illustrate the sector’s reliance on turbulent securities businesses. Banks that have sizeable consumer divisions held up significantly better. Net income at the retail arms of JPMorgan Chase and Bank of America rose 12 percent and 22 percent, respectively.
Still, the overall results from the big six were not as bad as feared, spurring an 8 percent rally in bank stocks since JPMorgan started the reporting season last Wednesday. Of the six banks only Wells Fargo, which has the smallest investment banking arm, managed to increase revenues by 4 percent from a year earlier.
The collective performance stands in contrast to the first quarter of 2015, when a revival of trading desk revenue stirred hopes investment banks had finally put a long period of depressed returns behind them. While the battering was caused largely by difficult markets, the drops also reinforce fears that post-crisis regulation and a shift to electronic trading platforms have permanently damaged investment banks’ fortunes.
While analysts have forecast another year-over-year dip in total revenues in the second quarter, some executives were more optimistic. They said trading businesses had recovered in March and April. Some also said they expected advisory and underwriting fees from deals, initial public offerings and debt raising to recover.
Whether or not investment banks make a recovery, analysts expect retail and commercial operations to continue to act as a ballast. Several financial executives said they believed American consumers were resilient so they planned to increase lending through credit cards, mortgages and car loans. “The consumer is in good shape,” said Tony DeSpirito, portfolio manager of the BlackRock Equity Dividend Fund, which manages $21 billion.
From a big-picture perspective, the Q1 results were not as bad as expected. Let’s see what happens in the next three quarters.
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Ryan Lahti is the founder and managing principal of OrgLeader, LLC. Stay up to date on Ryan’s STEM-based organization tweets here: @ryanlahti
(Photo: Piggy Bank, Flickr)