Falling interest rates and volatility in foreign exchange markets helped money-center banks boost their trading revenue 30% during 1995.
Led by Citicorp, the six biggest trading banks posted a combined $4.9 billion in trading revenues for the year, a $1.1 billion increase from the combined $3.8 billion earned a year before.
Most analysts had predicted a recovery for trading revenue in 1995, but few had expected a rebound this strong.
"I think most people were surprised trading revenue was as strong as it was," said Larry Cohn, a bank analyst with PaineWebber Inc. in New York. "Results for 1994 were really weak, and the bounce back in 1995 was quite good."
Although results rebounded for the year, fourth-quarter performance for some of the money-centers fell from the levels of the two previous quarters. In a research report on trading activities, Diane Glossman, a money-center bank analyst with Salomon Brothers Inc., attributed this decline to the lack of a strong bond rally, and to the currency volatility that occurred in the previous two quarters.
The top performer for the year was Citicorp. Aided by increases in all trading categories, the bank posted $1.6 billion in revenue from these activities, a 120.5% jump from the $731 billion reported for 1994.
The bank benefited more than most from the volatility in the foreign exchange markets, said Frank DeSantis Jr., money-center bank analyst with Donaldson, Lufkin & Jenrette. He pointed out that nearly 70% of the total increase from 1994 came in foreign exchange trading.
He said the only other money-center bank that posted "excellent" results was J.P. Morgan & Co. The bank said its trading revenues for the year nearly reached $1.4 billion, an increase of $357 million, or 35%, from 1994 results.
J.P. Morgan's fourth-quarter results, at $369 million, increased 141% from previous year.
The downside is in derivatives trading, Mr. DeSantis said, which continued to cause problems as end users switched to lower-margin generic products. Institutions such as Bankers Trust Co., which developed derivatives as a major product, were hurt the most. During the year, Bankers Trust posted trading revenues of $341 million, a 26.7% drop from 1994, due in large part to a $78 million loss during the first quarter.
"Derivatives trading was weak, but still positive," Mr. DeSantis said. "There was still good customer volume, but much less use of structured derivatives."
Chemical Banking Corp. posted the third-highest trading revenue for the year, with $624 million. Its merger partner, Chase Manhattan, ranked fifth among the top banks, with reported revenues of $412 million.
Combined, the two banks would have generated total revenue of more than $1 billion, or 13.4% less than combined 1994 results. The combined banks' enjoyed a 265% increase in fourth-quarter trading results, which totaled $281 million.
BankAmerica Corp. posted a 47.6% pickup in trading revenues for the year. The bank also benefited from the rally in bonds and foreign exchange markets. For the year, the bank reported $303 million in foreign exchange revenues, a 27.8% increase from 1994. During the same period, trading in debt instruments rose $100 million, to $157 million, due to declining interest rates.