Trading profits info scant at top banks

August 5, 2010 | By Jim Kim

The trading business has undergone some wrenching changes recently. But one thing that has stayed the same is that the industry has always merited a low price-earnings multiple. Right now, the industry trades at roughly less than nine times forward annual earnings, which is not shocking. The reasons are fairly obvious. Earnings have always been hard to predict, which is truer today than ever. And the business has always been volatile.

In that vein, Breakingviews notes that top banks provide only scant information about their trading results, even though the activity accounts for a majority of revenue at most banks. "In its second-quarter results, Morgan Stanley alluded to the 'challenging trading environment' in credit and rates (government bonds)' while JPMorgan noted 'lower results' from these divisions. Credit Suisse gave an indication of the relative size of its trading businesses but didn't provide specific figures.

Some banks are more forthcoming. UBS provides quarterly revenue figures for key areas--cash equities, derivatives and prime brokerage in equities; and credit, rates/forex and emerging markets in fixed income." The UBS approach is welcome. Frankly, even more information would be warranted. Banks may be afraid that competitors will glean information, but any information would appear to be of little value. This is something that analysts should make an issue, as should shareholders.

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