U.S. banks’ trading revenues have plunged, leading them to rely on other business units for growth or at least stability. However, even if trading picks up between now and year’s end, traders’ bonuses for this year will likely take a big hit.
Wall Street competitors are relying on investment banking to take the slack, and Jefferies – traditionally considered more of a trading house – is no exception, according to Bloomberg.
Five years ago, Jefferies’s revenue from dealing stocks and bonds was almost double what its bankers generated. In contrast, the firm’s trading revenue dropped 7% over the past several months to $319.5m, the lowest level in a year and a half, a sign that an industrywide decline in transactions is worsening.
Luckily investment banking saved the day for Jefferies, as fees surged 61% to a record $475.7m for the quarter driven by bond underwriting and the advisory business. Revenue from the debt capital markets unit more than doubled to a record $186.3m in the quarter, while advisory fees rose 32% to $203.4m. Jefferies’ profit in the fiscal third quarter more than doubled to $83.8m as net revenue advanced 22% to $800m.
That chimes with the rest of Wall Street. In the first half of the year, the five largest U.S. investment banks – J.P. Morgan, Bank of America Merrill Lynch, Citigroup, Goldman Sachs and Morgan Stanley – posted combined investment-banking revenue of $15.3bn, a 20% increase from the same period a year earlier, per Bloomberg. Trading revenue held steady at $39.5bn.
J.P. Morgan, Citi and BAML have seen trading revenue declines ranging from 15% to 20% in the third quarter from the same period a year ago.
Separately, HSBC knew it needed to step up its electronic trading game, so it hired Robert Crane, formerly of KCG Holdings and Goldman Sachs, one of the most senior trading executives in Europe. He’s taken on a newly created role at the British bank – the global head of cash execution, reporting to Hossein Zaimi, the global head of equities, according to Financial News. Crane left KCG in July, so that's a pretty fast turnaround...
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