Bank of America's results confirm the best place to be in banking now
Three banks have reported their results for the first three months of 2018: Citi and J.P. Morgan last Friday, Bank of America today. All three suggest the same when it comes to the sweetest spot for persons working in banking at the start of 2018: you want to be in equities trading. Revenues here are going through the roof.
As the chart below shows, Citi, J.P. and BAML have each reported double digit increases in equities revenues in the first quarter versus Q117. At Bank of America, equities revenues were up a mighty 38%.
To what do equities professionals at U.S. banks owe this windfall? In its presentation today, BofA said the rise was, "driven by increased client activity and a strong trading performance in derivatives." Bank of America has lost several members of its London equity derivatives team in the past month; it doesn't seem to have had much effect.
J.P. Morgan attributed its almost equally impressive equities performance to its strength in prime brokerage and "material increases in electronic trading." This makes sense: Bloomberg recently detailed how J.P. Morgan won equities trading market share by copying Morgan Stanley's strategy of going after prime brokerage clients and investing in high speed trading.
Citi, meanwhile, said its growing equities revenues were driven by growth across "all products as volatility trended higher," and that there was, "continued momentum with investor clients."
The big question now, then, is whether other banks can keep up. Goldman Sachs was late to the electronic equities trading game, but has been frantically trying to regain lost ground under Raj Mahajan, its head of electronic equities execution. The firm has been busy hiring senior equities traders like Mark Hibbert, the former co-head of U.S. sales trading at Deutsche Bank, plus all sorts of equity derivatives salespeople in Europe. Goldman reports its second quarter results tomorrow.
The other equities efforts to watch will be those at Deutsche Bank and Credit Suisse. Deutsche is trying to reinvigorate its equities business under Peter Selman, whom it hired in December. Selman previously worked for Goldman Sachs. Credit Suisse is busy building its equities business under Mike Stewart. In an interview with Bloomberg earlier this month, Stewart said the Credit business will continue hiring in equity derivatives, but is now in “execution mode” and aspires to a top five position in equities overall. CS needs to hope revenues come through: its London equity derivatives and investor products business made a loss of $76m for 2017.
If equities traders are enjoying a good start to the year (so far), the same cannot be said for fixed income currencies and commodities (FICC) traders. As the chart below shows, the picture here is mixed: only J.P. Morgan's FICC revenues rose year-on-year in Q1. At BofA and Citi, it was altogether more miserable. BofA blamed the fall on its credit traders, saying that its macro traders (rates and FX) did better than before. - Last year macro traders accounted for 36% of BAML's fixed income revenues in the first quarter; this year they were up to 42%. Citi, however, had the opposite experience. Its credit revenues fell 2%, but its macro revenues were down a 17%. At J.P.M., FX, emerging markets and commodities were strong; rates and credit were not. The picture was mixed, basically.
IBD: Mostly miserable
If equities markets divisions are hot and fixed income markets divisions are "varied", the picture for capital markets bankers in equity capital markets and debt capital markets is more equivocally dismal. Here, each bank to have reported so far has revealed a hefty revenue decline. BofA today said its miserable performance across its investment banking division versus the first quarter of 2017 was down to last year's first quarter being so, so, so strong. The bank said it's hiring, "additional client-facing professionals to further strengthen local market coverage," and remedy the situation. At J.P. Morgan, where ECM revenues were down 19% and DCM revenues were down 18%, CFO Marianne Lake spoke vaguely of being, "under indexed" for a "larger fee event," but reassured everyone that the pipeline is strong.
Strong pipeline or not, you're probably better off working in equities for the moment.
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