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Will falling trade revenue break the bank?

Many major banks are suffering declines in trading revenue amid an environment of tranquil markets and stringent regulations.

The financial services industry could be susceptible to many operational challenges with enough direct hits to the top line. Lenders are already losing ground in a challenging environment characterized by lackluster revenue streams and strict compliance.

Amid these concerns, many major financial services industry participants will soon report their second quarter earnings. Of the largest U.S. banks, analysts surveyed by Bloomberg LP have predicted that only two - Morgan Stanley and Wells Fargo - will report profit growth from one year ago.

Downward trend expected to continue

JPMorgan Chase & Co. forecast a 20 percent drop in this source of revenue. In May, John Gerspach, CFO of Citigroup, estimated that his company's trading revenue would fall between 20 and 25 percent in the second quarter from one year earlier.

One particular area of trading where banks are suffering particularly sharp declines is commodities, Bloomberg reported. Figures provided by London-based research firm Coalition indicated that during the first quarter, the commodities units of the 10 largest banks generated $3 billion in trading revenue, 33 percent less than $2 billion in the previous year.

Many experts believe that bank trading will never return to its pre-recession status. Only time will tell, but banks that are wise to explore operational efficiency as a means to cut costs are the ones who will be left standing when the smoke begins to clear.

 

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