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Banks are on track to generate their highest annual trading revenue since 2010 as equity derivatives and credit deals help power the business.
The industry is expected to bring in almost $225 billion in trading revenue in 2024, according to performance ratings from more than 250 banks by the Greenwich Coalition, an industry research group.
The figure would narrowly surpass the $224 billion earned in 2022 when Russia’s full-scale invasion of Ukraine rattled financial markets, and would mark the best year for bank traders since 2010, when they generated $226 billion.
Volatility ahead of the U.S. election and around the softening of the so-called yen trade helped boost trading revenue more than analysts and Wall Street investors had anticipated.
But banks also reaped big income gains in securities trading, spurred by the highest level of issuance since 2007, while a rebound in capital markets activity supported equity derivatives trading.
“Markets revenue collectively for banks has been stronger than we anticipated at the start of (2024),” said Mollie Devine of Coalition Greenwich.
“Following the high water point of 2022. . . finishing in a similar place (as that year) is considered a positive result for the banks and better than expected.”
The latest figures show how Wall Street’s trading business has rebounded after a five-year slump between 2014 and 2019, even as they faced increasing competition from specialist e-trading firms such as Citadel Securities and Jane Street.
The five biggest investment banks are on track to generate $112 billion in trading revenue by 2024, according to estimates compiled by Bloomberg, again eclipsing 2022.
Analysts forecast full-year revenues for fixed income and equity trading at JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup to grow 6.1 percent from 2023.
Of the big five U.S. investment banks, only BofA is expected to earn easily more from trading in 2024 than in 2022 and 2023 — though it has the smallest overall total. Jim DeMare, who heads the business for BofA, is seen as a leading candidate to potentially succeed longtime CEO Brian Moynihan.
The end of the last decade was marked by low market volatility, low interest rates and higher regulatory and technology costs. Banks benefit when prices rise rather than move steadily in one direction.
Trading activity was boosted by the Covid-19 pandemic, which marked a return to extreme periods of market volatility and geopolitical events such as Ukraine, as well as rising interest rates.
The big banks have also benefited from rivals pulling out of the trading business – including the exit of Deutsche Bank from stock trading and the collapse of Credit Suisse – which has allowed incumbents to capture more business.
“The top four or five (banks) have bigger market shares today than they did 10 years ago,” said Gerard Cassidy, banking analyst at RBC.
Banks have focused on financing the activity of primary brokerage in shares and lending to private investment firms with fixed income, valued by shareholders as more predictable businesses.
Unlike 2022, when trading income was driven by movements in commodities and macro trading, equity derivatives, credit and securities were the hot spots in 2024.
Investors have typically avoided assigning a high valuation multiple to trading activities due to its lack of predictability.
“In 2019 we were discussing with some clients about shrinking or exiting low return businesses like commodities and cash stocks. The dialogue has changed,” said the Coalition’s Devine.
“Our clients do not expect a retrenchment anytime soon in the pre-Covid market revenue levels.”
