Bank of America's Fixed Income Sales and Trading Beat Expectations in Q3

Strategic Insights -

Bank of America's third-quarter fixed income sales and trading were higher than those of its competitors, JPMorgan and Citigroup, according to Bloomberg's Chief Financial Correspondent. This surprise outperformance has led experts to question whether the "Moynihan chemistry" is clicking into place at the bank. David Ritter, Senior Analyst and Director of Financial Services Research at Argus Research, attributes the pickup to the bank's traditional strengths in fixed income trading.

Ritter also notes that the commercial banking sector, where Bank of America and JPMorgan have traditionally excelled, saw a pickup in the quarter. However, he warns that the return of capital to shareholders, such as dividend payments, may be slow to materialize. Ritter suggests that JPMorgan Chase is likely to be the first bank to raise its dividend, but notes that Bank of America and Citigroup will face challenges in generating cash due to their large runoff portfolios.

The conversation also touches on the mortgage business, with Ritter highlighting the uncertainty surrounding the title of mortgages sold into securitizations. This issue has led to a buildup in litigation reserves at banks like JPMorgan and Bank of America. Ritter cautions that the most pressing issues in the mortgage business are not just about foreclosure procedures but also the validity of ownership of mortgages.

Key Takeaways:

  • Bank of America's third-quarter fixed income sales and trading were higher than those of its competitors, JPMorgan and Citigroup.
  • The commercial banking sector saw a pickup in the quarter, driven by Bank of America and JPMorgan's traditional strengths in fixed income trading.
  • JPMorgan Chase is likely to be the first bank to raise its dividend, but Bank of America and Citigroup will face challenges in generating cash due to their large runoff portfolios.
  • The mortgage business is hampered by uncertainty surrounding the validity of mortgage ownership, which has led to a buildup in litigation reserves.
  • The return of capital to shareholders, such as dividend payments, may be slow to materialize.
  • Goldman Sachs is not considered a bank, but rather a financial institution with a commercial banking charter that allows it to engage in banking activities.
  • Ritter expects Goldman Sachs to focus on its advisory and underwriting businesses, which have traditionally generated high margins.

Statistics:

  • Bank of America's third-quarter fixed income sales and trading were higher than those of its competitors.
  • Bank of America's commercial banking sector saw a pickup in the quarter.
  • JPMorgan Chase bought back a significant amount of stock in the second quarter.
  • Citigroup expects to return capital to shareholders in 2012.
  • The runoff portfolios of Bank of America and Citigroup are valued at over $400 billion.
  • The unemployment rate in the U.S. is 10%.

Sources:

  • Bloomberg News
  • Argus Research
  • Bloomberg's Chief Financial Correspondent
  • JPMorgan Chase
  • Citigroup
  • Bank of America