Several major Wall Street banks are expected to report combined quarterly equity trading revenue of nearly $19 billion when they release earnings next week, yet performance is beginning to diverge sharply as capital markets cool.
This stands in stark contrast to the first half of the year, when virtually all of the five largest U.S. banks benefited from a trading boom, with both equity and fixed income desks humming with activity. "In the first half, almost everyone could be called a winner, but that may no longer be the case," said Wells Fargo analyst Mike Mayo. "The gap between winners and losers could be wider this quarter."
According to analyst estimates compiled as of Thursday's New York market close, Goldman Sachs Group is expected to lead in equity trading. The bank, which reports on Tuesday, is forecast to post $5.1 billion in equity trading revenue. Morgan Stanley is projected at $4.9 billion, JPMorgan Chase at $4.5 billion, and Bank of America at $2.6 billion for its equity trading business.
Other business lines are under pressure. Rising interest rates are weighing on fixed income trading. The five largest U.S. banks are expected to record their lowest fixed income trading revenue of the year this quarter. Higher rates could also amplify volatility on bank balance sheets.
Meanwhile, concerns about artificial intelligence are mounting, including the possibility that AI agent tools could drive deposit outflows from banks. These worries have already dragged on some bank stocks. In the third quarter, the KBW Bank Index posted its worst quarterly performance since the first quarter of 2023, when the U.S. was in the grip of a regional banking crisis.
"Bank stocks have clearly been sold off on a combination of concerns, including slower capital markets revenue growth this quarter, worries about rising funding costs, and anxiety over AI-driven cash optimization tools," said Morgan Stanley analyst Manan Gosalia.
If higher rates translate into more interest income from customers, that could be a positive for banks' lending businesses. But for trading desks, conditions are tougher. The five largest U.S. banks are expected to generate more than $19 billion in fixed income market revenue this quarter, down from more than $21 billion in the second quarter.