Which are the best banks in which to situate yourself if you want to work in European customer-facing cash equities sales and trading?
Markit thinks it knows.
The data provider, which recently went public - making founder Lance Uggla very rich, has issued its annual assessment of the top houses in European cash equities. Its verdict? Morgan Stanley is best by a wide margin. JPMorgan isn't much good at all.
Markit's assessment is expressed in the table below. The figures, which banks themselves don't make public, reflect turnover in banks' European customer-facing businesses only and only apply to trading in stocks issued by European companies. If a London-based bank happened to be trading U.S. stocks and then made a lot of money hedging its market making activities, this wouldn't be included, therefore.
If you want to work for the very best bank (measured in terms of market share) in European cash equities trading, Markit's figures suggest that you clearly need to work for Morgan Stanley, The U.S. bank achieved a 17% market share in the first half of this year, a lot higher than second ranked Bank of America Merrill Lynch (13%) and enough to make Goldman Sachs (7%) and JPMorgan (6%) look totally inconsequential. Notably, Barclays - which has invested heavily in developing a cash equities business - isn't in the top ten at all.
What makes Morgan Stanley's cash equities business so strong?
It helps that the U.S. bank has deliberate targeted the simple client-focused, low-risk, low-touch equities trading market. Back in 2013, Morgan Stanley CEO James Gorman said that Wall Street was returning to the 'pure agency trading' model of business it started out from.
Under agency trading, banks simply act as middlemen: they don't hold any stocks themselves, they just match buyers and sellers. There's no hedging. There's not much need for skill. Most agency trading can be done electronically. Cash equities jobs at banks which are focused on agency trading aren't very exciting, therefore. Nor are they very plentiful.
Morgan Stanley seems to be onto something, however. Markit's data suggests that banks like Credit Suisse have had their European customer-focused equities businesses decimated in recent years. Since 2012, Credit Suisse's revenues, as measured by Markit, have fallen 36%. Deutsche's have fallen 40%. UBS's have fallen 28%. By comparison, Morgan Stanley's customer-centric cash equities revenues have fallen by a mere 10% over the same period.
Why aren't Goldman and JPMorgan's European cash equities businesses stronger? In the case of Goldman, analysts typically point to the firm's historical focus on proprietary trading, which made its agency trading-type business less developed.
In the case of JPMorgan, cash equities is one of the bank's biggest weak spots. Earlier this year, JPMorgan stated its intention to remedy this: it wants to be in the top-three cash equities trading firms and plans to invest heavily in its electronic trading platform. Markit's data suggests that it still has a very long way to go.