Trading revenues hit record levels as markets grapple with spike in uncertainty.

The surge in first-quarter market volatility boosted the trading revenues of large European banks to record highs, Morningstar DBRS reports — and the trend is expected to continue driving capital markets revenues for the rest of the year.

The rating agency reported that Wall Street wasn’t the only beneficiary of higher first-quarter volatility, which boosted trading activity. Big European banks — including Barclays, BNP Paribas, Deutsche Bank, HSBC and UBS — also saw significant year-over-year gains in capital markets revenues.

Indeed, revenues from their sales and trading operations reached record highs in the first quarter, it noted. This strength in trading was somewhat offset, however, by a slowdown in investment banking, as securities underwriting and advisory activity was dampened by shifting U.S. trade policy, which stoked uncertainty and discouraged investment.

In aggregate, capital markets revenues at the big European banks were up 39% from the fourth quarter and 15% higher than the same quarter a year ago, driven by the “uncertainty and volatility experienced after the change in the U.S. administration and geopolitical uncertainty,” the report noted.

For the second quarter, European banks’ capital markets revenues could again exceed levels seen in recent years, “as we expect elevated volatility levels to significantly benefit [sales and trading] revenues and offset ongoing weakness in underwriting revenues,” the report said.

DBRS said it expects the banks’ trading revenues “to be exceptionally strong, as April showed one of the highest levels of volatility seen since the pandemic.”

Yet, for the rest of the year, both equity issuance and merger and acquisition activity are expected to be disrupted by “the current uncertain geopolitical and macro environment,” which will result in “lower-than-expected” M&A advisory and equity underwriting revenues, it noted.