Largest U.S. Banks Approach The Global Securities Trading Industry In Considerably Different Ways

Over recent years, the largest U.S. banks have chosen to respond to the stricter regulatory standards that have been in place since the economic downturn of 2008 in considerably different ways. The core goal for each bank has been to maximize securities trading returns while reducing the impact of the inherently capital-intensive business on capital ratio figures. But the relative importance they give to their equity trading and FICC trading desks in their business model is evident from the table below, which captures the ratio of FICC trading to equity trading revenues for each of the five largest U.S. investment banks. While Citigroup, Bank of America and JPMorgan lean towards FICC trading, Morgan Stanley clearly favors equity trading.

Bank of America’s securities trading operations contribute almost 15% of our $25 price estimate for the diversified banking giant’s shares.

On average, FICC operations contribute roughly two-thirds of the total trading revenues for these banks, with equity trading bringing in the remaining one-third. The proportion for individual banks over Q3 2017 is generally not just a result of trading performance for that quarter. This is evidenced in the table below, which details this proportion over the last five quarters.

While Citigroup relies on fixed income trading more heavily than the others (approximately 80:20), Morgan Stanley’s focus is largely on equity trading. Goldman seems to give both its trading desks roughly the same amount of importance, although their respective share of the total trading revenues fluctuates considerably from one quarter to the next based on prevalent market conditions. The table also highlights the overall lower FICC trading revenues for all banks over the last two quarters, as these revenues fell 20-25% y-o-y across the industry.

You can see how changes in Bank of America’s FICC trading yield impacts our price estimate for the bank by modifying the chart below.

See the links below for more information and analysis about the 5 largest U.S. investment banks:

• Equity Trading Revenues Nudge Lower In Q3 As U.S. Equity Market Volatility Plunged To A Record Low
• FICC Trading Revenues At Five Largest U.S. Banks Tank In Q3 Due To Low Volatility
• Total Investment Banking Fees At Largest U.S. Banks Fell In Q3 Despite Improvement In Overall Industry Globally
• Goldman’s Strong M&A Performance In Q3 Helps Total Advisory Fees For Largest U.S. Banks Reach $2.7 Billion
• Citigroup’s Global Presence Helps Equity Underwriting Fees Despite Poor Industry Activity

See full Trefis analysis for Goldman Sachs | JPMorgan | Morgan Stanley | Bank of America | Citigroup

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