Citigroup’s Trading Activity Is Key for Its 2018 Performance
US banks (XLF) enjoyed strong trading revenue in 1H17 due to rising equities and improved volatility. However, 2H17 brought subdued volatility and higher equity valuation, resulting in weaker trading revenue. The spike in volatility due to the recent global market rout could bring banks higher trading revenue in 1Q18.
Macro factors, such as lower tax, retail wealth generation, and the interest rate outlook, are keeping dealers busy coping with major allocation changes across global markets. Citigroup (C) commands a major portion of trading through debt securities. With interest rates at the forefront of volatility, the bank’s trading revenue could rise in 1Q18. In comparison, Bank of America (BAC) and JPMorgan Chase (JPM) have gained market share in trading, whereas Goldman Sachs (GS) has lost market share.
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Citigroup’s global custody business grew 14% to $603 million, led by higher volumes. Trading revenue is volatile compared with other revenue, and a rise in trading revenue could substantially boost Citigroup’s earnings in 1H18.