As Wall Street's fixed-income desks struggled in the third quarter, their rivals in equities seized a rare opening to outshine their market brethren. Equities divisions at five of the largest US banks are on track to deliver more than $66 billion of revenue in the first nine months of the year, roughly $3 billion higher than what's expected from units handling bonds, currencies and commodities. Part of that was driven by prime brokerage operations catering to hedge funds and other big stock investors.
It means a generation of bond traders are confronting, for the first time in their careers, the possibility of being beaten for the year by their peers in equities. That would not only shift the pecking order and bonuses, it would challenge the longstanding conventional wisdom that computers are set to take over stocks, eroding fees and revenue.
"It was not too long ago that people were concerned about electronification and equities trading," Goldman Sachs Group Inc. Chief Executive Officer David Solomon told analysts. "But as we sit here today, the opportunity set for us is greater than what anyone could have contemplated." Goldman's stock traders have notched two of their best quarters ever this year. At JPMorgan Chase & Co., equities traders chalked up their best third quarter ever, up 49% from a year earlier.
Wall Street's fixed-income desks are facing fallout from rising interest rates, which can push down the value of existing debt and crimp client demand. The Federal Reserve raised its benchmark rate in September to contain inflation. Meanwhile, banks' traditional lending roles are getting a boost, with JPMorgan, Citigroup Inc. and Wells Fargo & Co. setting a fresh record for lending income in the third quarter. Only Citigroup avoided a drop in fixed-income trading revenue among the largest banks reporting Tuesday.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing