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Banks are on track to post their highest annual trading revenues since 2010, as equity derivatives and credit deals help boost business.
The industry is expected to generate nearly $225 billion in trading revenue in 2024, according to performance estimates from more than 250 banks by industry research group Greenwich Alliance.
This figure would narrowly exceed the huge $224 billion taken in 2022 when Russia's large-scale invasion of Ukraine rocked financial markets, and represents the best year for bank traders since 2010 when they made $226 billion.
Volatility Before the US elections The unwinding of the so-called yen carry trade helped push trading revenues higher than Wall Street analysts and investors had expected.
But banks also reaped significant revenue gains through securitization trading, stimulated by the crisis Highest issuance level since 2007While the recovery in capital markets activity supported equity derivatives trading.
“Collectively markets revenues for banks were stronger than we expected at the start of (2024),” said Molly Devine of Greenwich Alliance.
“After the high water mark of 2022… and ending up in a similar place (that year) is a positive result for the banks and better than expected.”
The latest figures show how Wall Street's trading business has rebounded after five years of stagnation between 2014 and 2019, even as it faces increasing competition from specialist electronic trading firms such as Citadel Securities and Jane Street.
The five largest Investment banks It is on track to achieve $112 billion in trading revenue for 2024, according to estimates compiled by Bloomberg, once again surpassing 2022.
Analysts expect full-year revenue from fixed income and equity trading at JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup to increase 6.1 percent from 2023.
Of the five big US investment banks, only Bank of America is expected to comfortably earn more from trading in 2024 than it did in 2022 and 2023 – although it has the smallest overall total. Jim DeMare, who runs Bank of America's business, is seen as a prime candidate to succeed long-serving CEO Brian Moynihan.
The end of the last decade was marked by low market volatility, rock-bottom interest rates, and rising regulatory and technological costs. Banks benefit when prices bounce rather than move steadily in one direction.
Trading activity has been stimulated by the COVID-19 pandemic, which represents a return to extreme bouts of market volatility, geopolitical events such as Ukraine, as well as rising interest rates.
Big banks have also benefited from rivals shrinking their businesses – including Deutsche Bank Exit stock trading and the demise of Credit Suisse – which allowed those still standing to take on more business.
“The four or five biggest (banks) have bigger market shares today than they did 10 years ago,” said Gerard Cassidy, a banking analyst at RBC.
Banks have focused on financing equity brokerage activity and lending to fixed income PE firms, which shareholders value as a more predictable business.
Unlike 2022, when trading revenues were driven by moves in commodities and macro trading, equity derivatives, credit and securitization were the hotspots in 2024.
Investors typically avoid assigning a high multiple valuation to trading activities due to their lack of predictability.
“In 2019, we had discussions with some clients about scaling back or exiting low-yielding businesses such as commodities and cash stocks. The dialogue has changed,” said the alliance’s Devine.
“Our clients do not expect to step down to pre-Covid market revenue levels anytime soon.”
