Five Largest U.S. Investment Banks Made A Whopping $9.5 Billion From Equities Trading In Q1

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The largest U.S. investment banks gained substantially from increased volatility in equity capital markets over the first quarter, as they reported a little over $9.5 billion in equity trading revenues for the period – the highest since the economic downturn of 2008. The magnitude of their windfall can be understood from the fact that their average combined equity trading revenues for a quarter were $6.5 billion over 2010-17.

We capture the trends in equity trading revenues for each of these investment banks over recent years in detail as a part of our interactive model. We highlight key observations related to their equity trading revenues below.

The U.S. equity market was characterized by unusually low volatility over the second half of 2017 – a trend that was also evident in early 2018. Notably, the CBOE Volatility Index (VIX) largely hovered around the range of 10 to 12 between July 2017 and January 2018 – reaching an all-time low of below 9 last November. As values below 20 are interpreted as being indicative of an stable outlook for share prices, the extremely low VIX figures resulted in reduced market-making opportunities for investment banks over the period. But several geo-political factors resulted in a jump in market volatility in February, with the average value for the VIX increasing to 22 and with the index also crossing 50 early that month. This drove equity trading activity considerably for the quarter – resulting in outsized trading gains for the investment banks.

The table below details the trends in equity trading fees for each of these banks in the last five quarters. The green-to-yellow shading along a column highlights the relative performance of each bank in any given quarter. Notably, the relative standings of these five banks have remained unchanged since Q2 2015 – the quarter when Morgan Stanley cemented its position at the top of the list by pushing Goldman to the second spot.

Morgan Stanley dominates the equity trading business, with the investment banking giant holding the top rank globally in 16 of the last 19 quarters (Goldman topped the list on the other three occasions). Unlike its other U.S.-based peers, Morgan Stanley implemented sweeping changes to its business model over 2011-2012 to shift the focus of its business model away from fixed income trading and towards equity trading. And the bank has has done well to report average equity trading figures of more than $2 billion over the last fifteen quarters – higher than any other investment bank globally. In fact, second-ranked Goldman Sachs reported an average figure of $1.8 billion over the same period.

Details about how changes to Securities Trading Fees affect the share price of these banks can be found in our interactive model for Goldman Sachs | Morgan Stanley | JPMorgan Chase | Bank of America | Citigroup

Additionally, you can understand the impact of  Investment Banking Fees on the share price of these banks in our interactive model for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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