Big US and European banks' trading businesses performed poorly in the second quarter relative to recent periods, which executives attributed to market environment normalization and lower volatility.

In a sample of 11 global banks with significant investment banking businesses — five from the US and six from Europe — 10 reported year-over-year declines in income from their fixed-income, currency and commodities (FICC) activities, according to S&P Global Market Intelligence data. Seven of the 10 sampled banks with equities trading businesses also reported lower equities income.

Client activity slowed year over year in the quarter, affecting fixed-income and equities, Morgan Stanley CFO Sharon Yeshaya said during an earnings call. The bank's FICC income declined by 31.36% year over year, marking the largest drop in the sample. Its equities income slid nearly 14%, which Yeshaya attributed partly to lower volatility.

JPMorgan Chase & Co. experienced a 3% dip in FICC income, which was expected, given "the macro franchise substantially normalized from last year's elevated levels of volatility and client flows," CFO Jeremy Barnum said. JPMorgan's equities income slipped 13.19%.

The normalization came with markets "accepting the fact that high interest rates are likely to be here for longer than previously expected," Mohit Mittal, director of investment research at Acuity Knowledge Partners, told Market Intelligence in emailed comments.

FICC clients were "in a risk-off posture, relative to an active prior-year quarter," Goldman Sachs Group Inc. CFO Denis Coleman said during an earnings call. The bank's FICC income slipped by more than a quarter while its equities income inched up slightly.

Barclays PLC, Citigroup Inc. and French banks Société Générale SA, BNP Paribas SA and Groupe BPCE also reported double-digit declines in FICC income. Deutsche Bank AG, which no longer has equities trading activities after exiting the business in 2019 as part of a restructuring, saw its FICC income slip by about 10%.

BPCE and HSBC Holdings PLC were the only two European banks to book equities income growth, of 43.85% and 6.59%, respectively.

Despite the quarterly slump, the banks' trading performance was seen as strong. US banks' FICC and equities turnover continued to be above pre-pandemic levels, DBRS Morningstar analysts said in a commentary. European banks' revenues were also still considered resilient, the rating agency said in a separate note.

European banks are expected to continue delivering good performance during the rest of the year, but second-half revenues are likely to be lower still year over year, DBRS Morningstar said. US banks in the third quarter are also expected to report lower trading revenue, the agency said, noting that the second half remains unpredictable.

Global markets are normalizing but are not yet fully normalized, SocGen CEO Slawomir Krupa said, so banks could still benefit from some market volatility.

Fitch Ratings' downgrade of the US' credit ratings and actions by Japan's central bank also brought volatility back but are unlikely to have a prolonged impact on spreads and volumes, according to Acuity's Mittal. The second half will likely experience some increase in market volatility but not to levels seen in the first quarter.