A dismal fourth quarter for the industry saw steep declines in revenues for banks' trading desks, especially those covering the fixed-income and credit markets, and banks haven't been able to get their message straight on what exactly is causing it.
Bank of America brought in 21 percent less than the same quarter a year ago, and Citigroup brought in 16 percent less. JPMorgan Chase fared much worse, notching a 23 percent drop in the fixed income, currencies and commodities trading (which the industry refers to as "FICC").
So what's the culprit? According to executives, it's "volatility" ... in general.
It's an interesting claim. Volatility normally brings higher trading volume overall; a security making a sharp move in either direction, conventionally, would cause more clients to move their money around, generating more fees for the trading desk.
To that end, banks for years have been lamenting the lack of volatility as the reason why their trading results have been lackluster in prior quarters. The Federal Reserve 's zero interest rate policy all but dried up credit trading, they argued, and created a buy-and-hold mentality in equities as markets went nowhere but up with little gyration in between.
So one would think the fourth quarter-in which the equity market endured a large drop in October, the price of oil slid dramatically and global monetary policy shook up the euro, yen and Russian ruble-would have seen many of banks' absentee clients springing into action.
But Citigroup chief financial officer John Gerspach told reporters after the company's earnings release that the type of volatility that the market has seen recently "doesn't encourage activity" and that the company was only able to recover from the mid-October volatility because it had a couple months to make up for lost activity.
The "environment needs to be predictable and boring," Gerspach said, when asked at what point the earnings in that unit would stabilize.
Other executives took a more nuanced view to what would improve performance. BofA CFO Bruce Thompson said so-called "good volatility" happens when rates rise and investors shift their asset allocation to take advantage of new risk calculus.
In the current environment, volatility is good for equities. When that happens, "the investor side has conviction [to get] in or out," Thompson said. On the other hand, fluctuations in interest rates and foreign currencies benefit banks less.
Thompson also said Bank of America benefits more in quarters when its capital markets business issues more new debt and equity, since it then often captures the trading of those securities on the back end. Such "reasonable capital markets activity" also counts as "good volatility," Thompson said.
JPMorgan CFO Marianne Lake said some of the strength in trading came as clients sought to capitalize on a strengthening of that U.S. dollar or to hedge against the price of oil. And equity trading rose 25 percent from the same period a year ago, even as fixed-income earnings dropped sharply.
Still, it's clear there's no standard calculus to estimate the impact of such swings when they do happen.
Bank executives only made modest adjustments to trading expectations when addressing investors in December; Bank of America CEO Brian Moynihan said revenues would be flat to down, while Citigroup CEO Michael Corbat said they'd fall 5 percent. JPMorgan's Lake said, "all things equal," she expected overall trading revenues to fall 4 percent. (Even back then, volatility was a good thing, and no anticipated double-digit drops.)
Flash back to a year ago, and banks even then were apologizing for lackluster trading activity; at the time, I compared it to retailers' using weather as a common crutch for bad earnings.
The blame game for 2013 centered around the Fed, which was in the process of setting market expectations for the eventual end of its stimulus program that officially wrapped up in October 2014.
For BofA, the volatility it helped; for Citigroup, which shrugged off the quarter's weakness, it hurt.
It doesn't look like the market, good or bad, will bring the predictability Wall Street wants anytime soon.
UBS analyst Brennan Hawken worried aloud on the JP Morgan conference call about the prospect for the current quarter, given the volatility that seems to have crept over from 2015.
"It does feel a lot like déjà vu here," Hawken said.