Proof that the worst traders on Wall Street work for European banks?
Banks are cutting traders on Wall Street. Deutsche Bank's cuts have been well-documented, but it's not the only one trimming: Bloomberg reports that Nomura is cutting 28 global markets traders in the U.S. too. Securities professionals in New York City might want to watch their backs - or head for the banks with the best traders in the market.
Thanks to the Federal Financial Institutions Examination Council, it's possible to get an idea where the best traders are to be found. The council, which prescribes principles for five different financial regulatory bodies in the U.S. requires banks to publish quarterly reports on their risk exposure and the performance of their trading businesses in America. It was one of these reports that highlighted the trading irregularities at Deutsche Bank's U.S. business, for example.
The reports illuminate the extent to which traders at different banks had loss-making and profit-making days in the three months to March 2018. The results, which are shown below, clearly reflect the tendency for traders at European banks in America to have a lot more loss-making days than their traders at their U.S. counterparts.
As the chart below shows, the U.S. trading businesses of HSBC, BNP Paribas and UBS all had far more loss-making than profit making days in the first quarter.
By comparison, the profit-making days at both J.P. Morgan and Morgan Stanley far surpassed the loss-making ones, with both U.S. banks making profits on 42 days and losses on just 22.
The information isn't infallible. We don't know, for example, whether the profits that were made on the profit-making days far outweighed the losses. Goldman Sachs' traders made profits on the same number of days as Deutsche Banks' - even though we know that on one of the 27 days that DB traders made a loss, the loss was a huge 1,197% of that day's expected value at risk.
Nonetheless, on balance, U.S. banks' trading divisions look like the best places to be on Wall Street - with J.P. Morgan and Morgan Stanley's the best of the lot. Meanwhile, Deutsche may not be the only bank with a U.S. risk management problem - HSBC and BNP Paribas also had days when their U.S. businesses made losses that exceeded estimated Value at Risk in the first quarter, although at 166% and 108% of expected VaR, the miscalculations weren't nearly as extreme as at Deutsche Bank.
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