US Banks Report Strong Q1 Results, With Citibank Again Topping The List

US banks are reporting substantially higher foreign exchange trading revenues for the first quarter, with Citibank once again leading the pack. Citi reports FX earnings of $297 million for the quarter, up 45 per cent from the $205 million reported for the same period a year ago.

The stellar performance by the US banks is attributed mainly to a volatile and active quarter; however, general sentiment is that the bulk of the quarter's gains came from the "tremendous" activity seen in January. "Banks probably captured a strong January, but were struggling through February and March," says a dealer. That was the same sentiment voiced a year ago, when most banks reported lower first quarter results (FXW, April 22, 1996). Nevertheless, earnings are on the upside this year, indicating how strong a month January actually was for the industry.

Citi's 45 per cent improvement is a reflection of "new trends in the currency market with a substantially stronger dollar and sterling, and a dramatically weaker yen", a source close to the bank says. Increased volatility also played a part in the higher earnings, caused by greater uncertainty over the likelihood of the planned European Monetary Union succeeding on schedule. This volatility in turn contributed to more activity by both corporates and investors, which thereby increased hedging, adds the source.

No one sector can be cited as the profit centre for Citi because "all areas have contributed equally", says the source, who adds that the bank's success in FX continues due to a consistency in dealing with its customer base.

Furthermore, the source says, Citi continues to outperform its counterparts due largely to its large distribution network. "In a volatile environment, when it is riskier to quote prices, one needs a big distribution network to do well," says the source. "Therefore, in a volatile market, Citi really shines."

While Citi outran contender Chase Manhattan Bank by almost two-fold, the latter also shows a substantial increase in earnings. A year after Chase and the former Chemical Bank started trading as one bank (FXW, April 7), the new Chase reports a 21 per cent increase in earnings to $169 million from $140 million. For the pre-merger Q1 1996 period, the bank reports combined results.

Citi has long been viewed as the "premier volume shop", but with the new Chase coming into its own, the lines between Chase's and Citi's forex operations have become less distinguishable, says an analyst. However, he adds: "One would have to assume that Citi, being the huge bank it is, just holds more of the marketshare in terms of volume. And while the new Chase is the mega-bank that it is post-merger, there may have been some overlap in terms of Chemical and Chase customers."

JP Morgan placed third among the major American banks, reporting a significant 77 per cent increase in foreign exchange revenues, to $120 million from $68 million (FXW, April 14).

Bank of America (BofA) is the only bank in the top five to report a dip in earnings, albeit slight. BofA reports forex revenues of $92 million, down 6 per cent from $98 million reported for the same period last year. In the past year or so, BofA has undergone a number of changes, including the globalization of its FX and derivatives businesses. BofA also named a new global head of FX last year, executive vice president Robert McKnew, and saw the subsequent departure from that post of Paul Chappell (FXW, July 22 & August 19, respectively).

Bankers Trust doesn't break out FX, but reports non-interest revenue from trading as $279 million for the first quarter of 1997, up 13 per cent from $247 million reported for the same period last year. For the fourth quarter, BT reported trading earnings of $234 million.

State Street Bank reports forex revenues are up 35 per cent, to $46 million from $34 million. State Street recently named two new heads for its Boston trading room, with ABN Amro's Kevin Weir heading institutional sales and Lehman Brothers' Michael Kahn as spot chief dealer (FXW, February 24 & January 20, respectively).

State Street saw significant volume growth during the period, with all eight centres reporting a strong first quarter, says Stan Shelton, senior vice president, general manager, treasury. Furthermore, he says, "we've seen success from our electronic trading system (Global Link) which we've been rolling out since last August". Global Link is an institutional interactive trading system for State Street's investment manager clientele.

Republic National Bank of New York reports a slight decline in earnings to $27.1 million versus the $27.5 million reported for the same quarter last year.

The Bank of New York (BoNY) doesn't breakout FX separately, but does report the largest percentage increase for the period from FX and "other" earnings, showing a 170 per cent improvement to $27 million from the $10 million reported in Q1 1996.

A year ago, the bank entered a servicing and technology agreement with derivatives boutique Susquehanna Partners to provide its customers with a broad array of foreign exchange risk management products (FXW, March 4, 1996).

Northern Trust reports a 60 per cent improvement in quarterly forex revenues, to $20 million versus $12.5 million a year ago. Northern recently named Patrick McDougal as its new global head of FX, succeeding Jack Hogge (FXW, March 17).

Meanwhile, NationsBank shows the greatest percentage decline in earnings, reporting revenues of $16 million, down 24 per cent from the $21 million reported for the previous year. Last year, NationsBank basically abandoned its designs to be a major forex trading bank, substantially reducing its global forex staff (FXW, November 18 & August 5).

BankBoston reports earnings of $19 million, up 46 per cent from $13 million reported a year ago. BankBoston last year made a high profile hire, naming Chase veteran Jim Borden to head global FX, and has since hired a number of Chase recruits to senior positions within the bank (FXW, September 9).