IT has been a nerve-wracking time for investors in recent months. They have been calling their brokers and bankers more than normal while fretting about war in Ukraine, high inflation and the wild lurches of financial markets.

       What looked like a nightmare for clients turned out to be a dream for big investment banks. Goldman Sachs, Morgan Stanley and Citigroup all smashed expectations for stock and bond-trading revenue in the first quarter when they reported their results on Thursday. JPMorgan Chase & Co did the same the day before despite taking some serious knocks linked to Russia.

       But none are clear about what investors might do next. How much of the trading over the past three months has been about dialling down the risks, putting hedges in place or adopting more defensive positions in markets? And will investors now batten down the hatches to wait out the storms?

       Mark Mason, Citigroup’s chief financial officer, told reporters it was hard to determine how much activity was defensive and how much was just regular trading.

       He didn’t know what this meant for the rest of the year.

       At Goldman, chief executive officer David Solomon said he wasn’t smart enough to know what was good volatility or bad volatility for his markets business; he said he was just focused on serving the clients.

       The day before, analysts begged JPMorgan CEO Jamie Dimon for his pearls of wisdom on recession risks; his response was their guess was as good as his.

       For some banks, it might partly have come from helping investors get out of Russia-related positions in ways that allowed them to buy assets at steep discounts and find buyers prepared to pay something closer to pre-war values.

       What is certain is that high volatility allows banks to quote much larger gaps between the prices at which they will buy and sell all sorts of assets.

       And these bid-offer spreads are where they make their money. Or at least they do as long as nothing goes wrong; higher volatility means higher risk for the intermediary, which is why a bank can quote a wider spread in the first place.So while markets heaved and churned in the first quarter, the banks’ business of standing between trades in commodities, currencies, government bonds and equities boomed.

       Goldman’s revenue from fixed income, currencies and commodities (FICC) was its best in more than five years at US$4.7bil (RM19.90bil), which was 50% greater than analysts’ forecasts, according to Bloomberg.

       Goldman didn’t have a record quarter for commodities, Solomon said, but most parts of the business outperformed. It was also helped by record revenue in the lending part of its FICC business; big mortgages for the wealthy were the biggest contributor.

       Mason said that Citi’s commodities revenue in the first quarter was up 173% compared with results in the period a year earlier and that foreign exchange had also done well. Its total FICC revenue of US$4.3bil (RM18.21bil) was down marginally from last year but still ahead of forecasts.

       Equities trading was also well ahead of forecasts for these banks – that’s perhaps more surprising given the mostly downward trend in stocks this year.

       Morgan Stanley did a Goldman in this field: Its US$3.2bil (RM13.55bil) of stock-trading revenue was its best quarter for at least five years.

       Morgan Stanley did well in European trading, and in fact CEO James Gorman said its overall business in Europe had delivered its best quarter in a decade.

       Again there wasn’t a lot of detail about how this was achieved. My guess is that part of what happened is that investors piled into European stocks at the start of the year –when everyone said they looked like the world’s best value play as interest rates started to rise and growth went out of fashion – and then rushed right out again once Russia invaded Ukraine.

       Investors seem to be adjusting to the war, perhaps too early; there could still be nasty surprises. And while the path for interest rates is becoming clearer, the full knock-on effects of a sharp US monetary tightening are tough to foresee.

       So I can’t criticise these executives for having a less-than-normal idea about how investors are going to behave. But what I would guess is that everyone will get used to things being generally more volatile – and investors will become less desperate and less willing to trade at the wide bid-offer spreads banks have been able to enjoy.

       If that’s true, trading revenue won’t reach anything like these high water marks over the rest of the year. — Bloomberg

       Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. The views expressed here are the writer’s own.