JPMorgan Is Expected To Rope In $100 Billion In Total Securities Trading Revenues Over The Next Five Years

by Trefis Team
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Upbeat economic conditions coupled with healthy volatility-levels in global capital markets have had a positive impact on the securities trading industry over recent years, even as the largest investment banks revamped their trading desks in the aftermath of the economic downturn to comply better with stricter regulatory requirements. Trefis highlights the historical trends in the Securities Trading Portfolio and Revenues of the 5 largest U.S. Investment Banks in an interactive dashboard, while also providing a forecast of these key metrics for individual banks for the next five years. The banks included in our analysis are Citigroup, Morgan Stanley, JPMorgan Chase, Bank of America, and Goldman Sachs. Additionally, you can see more Trefis data for financial services companies here.

What is Securities Trading?

Securities trading by banks involve various activities related to buying and selling of financial securities or other instruments on behalf of their clients. It is further divided into Equity Trading and FICC (Fixed Income, Currency & Commodity) Trading based on the type of security traded. JPMorgan Chase is the market leader in the securities trading space with average annual trading revenue of $19.7 billion over the last 10 years. And we expect the diversified banking giant to retain its pole position for the foreseeable future, with these revenues trending steadily higher – adding more than $100 billion to its top-line over 2020-24.

How Has The Securities Trading Portfolio For These Banks Changed, And What Can We Expect Going Forward?

  • The securities trading portfolio for the largest banks was $1.6 trillion in 2006, and swelled considerably in the run up to the downturn, before slumping to $1.6 trillion again in 2009.
  • The figure trended higher over subsequent years and was $1.7 trillion in 2012. However, negative market outlook coupled with widening of credit spread and lower client activity over 2012-2015 reduced this figure to $1.3 trillion by 2015.
  • Although total trading assets have increased steadily since then, lower equity valuations in late 2018 hurt the figure for the year
  • New Regulations enacted in the aftermath of 2008 meltdown stifled Securities Trading operations.
    • Volcker Rule: It prohibits proprietary trading by banks which was one of the main sources of revenue.
    • Dodd-Frank Act and Basel III Capital Rules: They increased regulatory oversight and limited Bank’s ability to use borrowed money for trading.
    • Additionally, commodity trading operations have shrunk across banks since 2015 as allegations of market manipulation resulted in regulators scrutinizing the banks’ role in the once-lucrative industry.
  • Total Securities Trading assets which include FICC and Equity assets are expected to grow at an average annual rate of 3-4% over next five years for these 5 banks to swell to an all-time high of $1.8 trillion by 2024. However, securities trading revenues are expected to grow at a slower pace and reach roughly $81.5 billion by then.
  • Notably, the combined securities trading operations of the 5 largest U.S. investment banks is expected to generate $390 billion in trading revenues over 5-year period 2020-24.

Key Observations Over 2009-2018:

  • Total Securities Trading revenue was highest in 2009 ($105.3 billion) and lowest in 2017 ($71.4 billion). The average annual revenue over 2009-2018 was $79.2 billion.
  • JPMorgan has shown the strongest performance among its peers with highest average annual revenue of $19.7 billion. Notably, though, Goldman Sachs recorded the highest annual revenue of $32.7 billion in 2009.
  • While Bank of America recorded the lowest average annual revenue of $14.06 billion over this period, Morgan Stanley reported the lowest annual trading revenues of $6.7 billion in 2012 when it began refocusing its efforts away from FICC trading towards equity trading.

The green-to-red shading for figures along a column show the variations in Securities trading asset base and Securities trading revenues for top 5 US investment banks in a particular year.

Do not agree with our forecast? Create your own forecast for by changing the base inputs (blue dots) on our interactive dashboard.

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