Richard Ramsden, a Goldman Sachs Group Inc Analyst, estimated last week that revenue from investment banking and trading in the US could fall by 30% in comparison to the first quarter.
Present concerns include the possibility that Greece may abandon the euro and the European debt crisis will spread to other nations, including Spain.Those economic issues cut profit, bonuses and jobs at Wall Street firms in last year’s second half and threaten to do the same in 2012.
“It’s going to be a tough summer at least, and it does feel like the last couple years all over again,” said David Konrad, an analyst at KBW Inc. in New York. “The bank valuations seem unfairly discounted, but investors are looking at this year and saying, ‘I’m not going to fall for this again.’”
Greece is compounding the impact of stiffer capital rules and trading restrictions for banks imposed after 2008’s credit crisis. Those measures were already fueling concern that the industry may be locked in a long-term slump. Combined trading and investment-banking revenue at the five biggest Wall Street banks -- JPMorgan Chase & Co. (JPM), Goldman Sachs, Bank of America Corp. (BAC), Citigroup Inc. (C) and Morgan Stanley -- is likely to drop from a year earlier for the seventh time in eight quarters, according to analysts surveyed by Bloomberg.
The five banks generated about $33 billion from those businesses in the first three months of the year, excluding accounting charges. That was led by $20 billion from fixed- income trading.
Revenue from trading typically peaks in the first quarter in part because corporations raise more debt at the beginning of the year, stoking fixed-income operations, said Roger Freeman, an analyst at Barclays Plc.
Still, a normal seasonal decline for fixed-income trading revenue in the second quarter is 15 percent, while this year probably will be 30 percent to 40 percent, Goldman Sachs’s Ramsden said. Last year, the second-quarter drop for U.S. firms was about 31 percent, while in 2010 it was more than 40 percent.
Those declines were followed by weak third and fourth quarters that featured investment-banking and trading revenues more than 40 percent off the first-quarter pace. The chances of that trend recurring this year look “increasingly likely,” Kian Abouhossein, an analyst at New York-based JPMorgan, wrote in a note last month.