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This bank business made a first-quarter comeback

rading revenue a bright spot, says KBW

Trading revenue may be a bright spot, says KBW.

From zero to hero! That is how some of the nation’s biggest banks may think about one key sector of their business.

After serving as a thorn in the side of large financial services companies over the past several quarters, fixed-income, currencies and commodities trading (otherwise known as FICC) revenues may finally be making a comeback and prove to be a bright spot as the banking sector prepares to unleash a barrage of quarterly results Tuesday.

According to Keefe, Bruyette & Woods, banks benefited by wild swings in everything from interest rates to the dollar as the market wrestles with the Federal Reserves first interest-rate hike since 2006. Choppy trading in commodities like crude oil also has been fuel for trading action.

First-quarter volumes in interest-rate securities trading rose nearly 13%, volumes for currencies rose nearly 17%, and energy-based commodities trading activity jumped 26% from the year-ago quarter, according to Barclays, citing CME Group figures.

This week, J.P. Morgan Chase & Co. JPM, +0.41% and Wells Fargo & Co.WFC, +0.76% report on Tuesday; Bank of America Corp. BAC, -0.82% reports on Wednesday, followed by Goldman Sachs Group Inc. GS, +0.15% and Citigroup Inc. C, +0.13% on Thursday.

J.P. Morgan and Goldman should be best positioned to cash in on those higher volumes, KBW said.

Other other hand, stock trading volumes for the first quarter were off by about 0.7% compared with a year ago, according to data from Barclays.

Outside of trading, consumer lending, including home loan applications, will be a big focus for bank investors looking at first-quarter results. With loan growth expected to be slightly higher compared with the fourth quarter, KBW still sees that growth driven more by commercial lending than consumer lending.

“We believe the U.S. consumer is still in a period of deleveraging, but any signs of re-leveraging would be a strong positive for Universal Bank stocks,” KBW said.

Bank of America is expected to drive the bulk of earnings gains for the S&P 500 financial sector, according to John Butters, senior earnings analyst at FactSet. B. of. A. reported a loss in the first quarter of 2014 because of a $6 billion litigation charge.

As far as how broader bank stocks will perform after earnings reports, KBW said they’re still not cheap and the sector as a whole will have to post higher-than-expected results to drive prices higher.

“We believe that if Universals can beat earnings expectations broadly based on sustainable trends then it could be the impetus to move forward estimates higher, and shares of Universal Bank stocks could respond accordingly,” the firm noted.