Trading, underwriting soften profit plunge for some U.S. banks

By David Henry

NEW YORK (Reuters) - Trading and underwriting revenue could provide some comfort for big Wall Street banks that begin reporting results next week, although second-quarter profits likely plunged because of the coronavirus pandemic's impact on lending.

Analysts expect capital markets-centered banks Goldman Sachs Group Inc <GS.N> and Morgan Stanley <MS.N> to report net income declines of 15% to 40% compared with the year-ago period, according to Refinitiv estimates. JPMorgan Chase & Co <JPM.N>, Bank of America Corp <BAC.N> and Citigroup Inc <C.N>, which have substantial lending businesses, are expected to report drops of 60% to 84%.

Wells Fargo & Co, <WFC.N> which does not have a major capital markets business, may even swing to a loss, according to estimates.

"For those that have it, robust trading revenues and investment banking fees should provide some offset," said analyst Jason Goldberg of Barclays.

The six biggest U.S. banks by assets begin announcing results on Tuesday. Goldberg expects them to report $31.7 billion in provisions to cover expected loan losses. That is six times more than their provision expense of $4.8 billion a year ago.

Conditions have been much better in capital markets. Companies have hired Wall Street banks to raise money from stock and bond issues, while corporate bonds have benefited from actions the U.S. Federal Reserve took to reduce credit risk.

Banks are also benefiting from wide spreads between buying and selling prices, according to analysts at Keefe Bruyette & Woods, while changing opinions about the future of the economy have driven high trading volume and volatility.

All of that suggests underwriting and trading revenue will improve. KBW predicts fixed-income trading revenue will be up 65% from a year earlier for the biggest banks.

(Reporting by David Henry in New York; Editing by Lauren Tara LaCapra and Dan Grebler)