Wall Street's Trading Buzz Is Quiet but Appears Legit
November 06 2016 - 12:40PM
Dow Jones News
By Liz Hoffman
When U.S. banks reported big increases in trading revenue last
month, there were two possible explanations: Either the business
was genuinely improving or the Wall Street firms had simply stolen
market share from beleaguered European rivals, which hadn't yet
reported earnings.
Now that major overseas banks have reported, it is clear that
the trading rebound -- such as it is, with just two consecutive
quarters of strong results -- is occurring across the board.
Trading revenue earned by the nine largest global firms rose 19%
in the third quarter from a year earlier, according to data
compiled by UBS Group AG. Of that group, the average U.S. bank's
revenue rose 28%, while the average European firm's was up 14%.
So the gains are real, even if they aren't shared evenly. UBS's
data included its own figures, as well as those of Bank of America
Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group AG and
Deutsche Bank AG, Goldman Sachs Group Inc., J.P. Morgan Chase &
Co. and Morgan Stanley.
The turnaround in fixed-income is particularly solid. Revenue
from that business, which includes bonds, currencies and
commodities, rose at each of the nine firms and 41% on average,
excluding accounting adjustments. That compares with a weak third
quarter of 2015, but is a sign that the pie is getting bigger.
It is a tougher story in equities, a division under pressure for
years from electronic trading and waning firepower of active stock
pickers. Revenue fell 7% year-over-year across the group, which
means the small gains reported in the quarter by Morgan Stanley,
Goldman and J.P. Morgan came at the expense of rivals, and weren't
the result of a rising tide lifting all boats.
A big question among bank executives has become whether trading
revenue has hit bottom after years of postcrisis declines. While
the trading business has edged up from rock bottom, whether it is
sustainable is another question.
The third quarter didn't rely on one-time shock waves such as
the U.K.'s vote to leave the European Union or Chinese market
turmoil to generate business, suggesting the core business is
strengthening. The focus now turns to fourth quarter, often a quiet
one for trading desks.
Write to Liz Hoffman at liz.hoffman@wsj.com
(END) Dow Jones Newswires
November 06, 2016 12:25 ET (17:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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