The major US banks are having an unexpected blowout in a critical business

It looks like Wall Street had a blowout quarter in an unexpected business: fixed income.

So far, JPMorgan, Citigroup, and Bank of America Merrill Lynch have reported second-quarter earnings, and they all beat expectations in fixed income, currencies, and commodities — or FICC — sales and trading.

At JPMorgan, FICC revenues came in at $US3.96 billion for the quarter, up 35% from last year and the highest quarterly revenues for JPMorgan since Q1 2015, when they were $US4.1 billion.

You’d have to go back to Q1 2013 to find significantly better results ($US4.8 billion).

The firm chalked the strong results up to higher revenues in rates, currencies and emerging markets, credit, and securitized products.

Citi reported FICC revenues of $US3.47 billion, up 10% year-over-year, while Bank of America’s FICC revenues came in at $US2.62 billion, up 22% from the year-ago quarter. That firm said the better-than-expected results were driven by stronger global performance in rates and currencies trading, high secondary trading in loans and securitized products, and solid performance in municipal bonds from strong retail demand.

This may come as a surprise.

If you’ve been paying attention to the fixed-income world, you know that business has had a terrible run in recent years. FICC revenues fell 9% across major banks last year.

Many firms have been cutting FICC headcount, including Deutsche Bank, Credit Suisse, Goldman Sachs, and Morgan Stanley.

But this unexpectedly strong quarter could be a signal that things are turning around.

Of course, it’s important to note the so-called Brexit’s potential impacts on the banks’ trading results. When the UK decided in June to leave the European Union, JPMorgan and Morgan Stanley posted record foreign-exchange trading volumes.

On a call with journalists Thursday, JPMorgan CFO Marianne Lake said the strong quarter was not attributable solely to Brexit.

“With oil stabilizing, policy stabilizing in China, obviously with the global monetary policy discussions, Brexit, there’s just a lot of activity in the client base,” she said. “And so we were strongly up in rates, up in emerging markets and currencies, and also spreads tightened and the risk appetite came back in the spreads products.”

Now the big question is how the remaining two bulge bracket banks — Goldman Sachs and Morgan Stanley — will fare in FICC.

Goldman, like JPMorgan, has previously committed to its fixed income business with CFO Harvey Schwartz laying out the bull case for it.

Morgan Stanley, meanwhile, cut a quarter of its fixed income staff last year in a definite move away from that business.

Stay tuned — Goldman is expected to report results at 7:30 a.m. ET Thursday and Morgan Stanley at 7 a.m. ET Wednesday.

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