Goldman Sachs reported FICC revenues of just $1 billion in Q4 2017. That was the lowest for the Wall Street firm, technically a bank, since it converted from properly a securities business to one during the worst of 2008. That was 50% less in “bond trading” than Goldman had produced during Q4 2016. You start to get the sense that these banks can only make money here during obvious and rapid “reflation.”
They were not alone in their Q4 struggles. Predictably, other large firms once very active in money dealing have reported this week less than stellar results in FICC. At the upper end, Bank of America (including Merrill Lynch) figures it brought in $1.71 billion in the segment, a decline of 13% year-over-year. The bank cited, what else, but lower volatility as a primary cause.
JP Morgan was closer to Goldman than BofAML in bond trading. Fixed Income Markets revenue was reported to be just $2.2 billion in the quarter, a year-over-year decline of 34%.
All of these banks, as well as their peers I haven't included here, keep saying how great their business is. And all of these banks continue to shrink anyway (growing a little is still shrinking).
Though this overview is a broad and general assessment of bank capacity, what it says about balance sheet capacity in its monetary function within the eurodollar system isn't good. “Reflation” aside, there isn't any money in money, and so there isn't an impetus for financial therefore sustained, broad-based monetary expansion. JP Morgan's chosen characterization of itself is probably the most appropriate description of this type of essential banking – the “fortress” balance sheet.
If it and the others stick to that guiding principle, we should not expect drastic (positive) changes in global monetary conditions. There may be here and there some qualified improvements, of course, such as we saw not coincidentally toward the end of 2016 and the beginning of 2017, back when banks could make a little money in bond trading. By and large, however, there aren't indications of inflection or anything beyond the mere relative.
