Bank CEOs tell investors trading boom could turn into a bust

After a year of eye-popping earnings, bank CEOs are warning shareholders that all good things must come to an end.

Over the past year, banks have posted record earnings as the Federal Reserve poured hundreds of billions into the bond market, the SPAC craze created a dizzying number of public offerings, and retail investors ramped up their trading volume.

But now business is returning to pre-pandemic levels. In recent weeks, Morgan Stanley CEO James Gorman, JPMorgan CEO Jamie Dimon and Citigroup CFO Mark Mason have all told shareholders to brace themselves for smaller returns moving forward.

“Obviously, it won’t be where we were in the first quarter, which was gangbusters, or a year ago,” Gorman said of second-quarter returns at a virtual conference earlier this week, according to the Wall Street Journal. “But certainly not a bad quarter and some really encouraging signs.” Gorman added he expects deal-making to continue.

JPMorgan chief Jamie Dimon
JPMorgan chief Jamie Dimon says second-quarter profits will still be “pretty good” despite a drop from the previous year.

Dimon and Mason have made comments that they expect trading revenue to drop 30 percent from a year ago. Dimon said JPMorgan’s second-quarter trading revenue will plummet roughly 38 percent from a year ago.

Still, bank stocks have been on a tear this year. The Nasdaq Bank Index surged 31 percent this year compared to a 12 percent increase in the S&P. Yesterday’s news that the Federal Reserve may hike rates in 2023 — sooner than expected — could also be good news for banks, which can expect to profit on lending as rates increase.

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