Behemoths as they may be in other areas of investment banking, both Citigroup and J.P. Morgan are both playing catch up with their rivals in equities trading.
Citi has been making some senior hires for its equities business over the past year, and is making a renewed push to haul itself up from ninth in the global stock trading league tables to at least sixth. J.P. Morgan's equities business is one of its few that doesn't rank first globally. In future, it wants to rank third, at least.
Has this paid off? In percentage terms, progress at both banks throughout 2015 was eerily similar. Both increased revenues by 13% year on year. Citi, however, beat JPM in the fourth quarter. Compared to Q4 2015, Citi's equities revenues were up is up by an impressive 29%. J.P. Morgan is down by 7%.
Citi’s move to build up in equities is another attempt to reduce its reliance on fixed income trading, where it currently ranks second, according to figures from UBS analysts. In 2015, fixed income at Citi stumbled, but didn’t tumble – revenues were down 7% for the year, to $11.3bn. J.P. Morgan brought in $11.4bn in fixed income revenues.
Citi's equities revenues still have a long way to go to catch up – they were $3.1bn for the year.
Citi's equities push has not been plain sailing. The division was leaking senior traders, and more senior people departed last year. Michael Caperonis, head of equities for the Americas, joined Nomura in November, for example, and Derek Bandeen, the head of Citi's equities division has had to restock his leadership team. Stephen Roti joined to lead its equity derivatives division, Murray Roos to run equity and prime-finance sales, John Lowrey to supervise cash electronic execution and Adam Herrmann as chief of prime finance.
CEO Michael Corbat said during the Citi conference call that equities is an area where they "continue to see the upside" and will be "investing in people, research, electronic trading platforms and other things".
Citi is cutting jobs, though – 2,000 in the first quarter of this year – and while traders and investment bankers are likely to be targeted, most are expected to be in the middle and back office.
J.P. Morgan and Citi kicked off the U.S banks’ 2015 reporting season and it just so happens that both banks are unlikely to make wholesale cuts to their trading businesses.
Corbat emphasised that it would be looking to gain market share in FICC as rivals cut back. The "leverage constraints" that its competitors are facing in areas like rates and currencies are an opportunity, he said. "Our scale and local presence present an ability to take some of that share," he said.
J.P. Morgan has already ruled job cuts out and Citi CFO John Gerspach said in December that the fixed income business has been “right-sized” over the past three years and any future cuts will be about “adjustments” not wholesale exits. Citi said that its rates and currencies business performed particularly well in the fourth quarter.
And Citi has already highlighted the “competitive” nature of investment banking markets with low capital requirements. J.P. Morgan posted $6.5bn in investment banking revenues for 2015, while Citi brought in $4.5bn.
Overall, Citi said it had spent more on compensation for its investment bank, without breaking out specific figures, and total revenues (excluding CVA/DVA adjustments) were flat across its institutional clients group at $33.4bn.
Citi wasn’t excluded from the M&A party in 2015 – revenues here were up 16% year on year – but a 28% slump in equity capital markets revenues and flat debt capital markets income meant a 3% drop on 2014.