Wall Street is bracing for an ugly earnings season — here's a breakdown of where banks are going to feel the pain

Hille Hillinga, Mediacentrum Defensie (MCD)December was a dreadful month for traders and investment bankers.
  • Big banks are expected to report painful fourth-quarter results following a dreadful December.
  • It’s a mixed bag between business lines, but investment banking revenues are expected to fall by 17% and trading revenues by 2.6%, according to Keefe, Bruyette, and Woods.
  • We’ve got a breakdown of which business lines are bracing for the worst.

The stock market turmoil at the end of 2018 has taken a wrecking ball to Wall Street’s fourth-quarter results.

The worst December stock-market performance since the Great Depression has big banks – whose shares fell 18% during the last quarter – bracing for an ugly earnings season across banking and trading business lines, and analysts have been slashing price estimates for the big banks to account for damage.

Which businesses will take the hardest hits when Citigroup, Bank of America Merrill Lynch, Goldman Sachs, JPMorgan Chase, and Morgan Stanley report fourth quarter results next week?

In investment banking it’s a mixed bag, according research from Keefe, Bruyette, and Woods, but overall revenues are expected to fall 17% compared with 2017.

Debt and loan underwriting fared the worst amid the market volatility, with revenues expected to decline 38% at the big five US banks compared with last year. Equity capital markets revenues are projected to fall 36%.

Mergers and acquisitions revenue – a lumpier business – is looking to be up 28% as more deals closed in the quarter. But announced M&A volumes fell 19%, which will likely show up in the results later in 2019.

KBW Q4 earningsKeefe, Bruyette, & Woods

In trading, KBW expects the overall pool of revenue to decline 2.6%. Again, a mixed bag here: Fixed income, currencies, and commodities is expected to decline 18%, while equities is expected to be up nearly 12%.

Jefferies, which reports earnings before the rest of the investment banks as its fiscal quarter ends on November 30, reported Friday a 9% decline in equities revenue and a 14% decline in FICC.

Among the big banks, Citigroup is expected to suffer the most in trading overall, down 9.9%, though it’s also projected to see the highest percentage gain in equities, up 25.4%. Goldman Sachs is projected to feel the most pain in FICC with a 25% decline.

KBW Q4 earningsKeefe, Bruyette, & Woods

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