Banks on track for blockbuster trade revenue 2024

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Banks are on track to generate their highest annual trading revenue since 2010 as equity derivatives and credit businesses help fuel business.

The industry is expected to bring in nearly $225 billion in business revenue by 2024, according to performance estimates from more than 250 banks by Coalition Greenwich, an industry research group.

The figure would narrowly surpass the blockbuster $224 billion earned in 2022 when Russia’s full-scale invasion of Ukraine rocked financial markets, and marks the best year for bank traders since 2010 when they generated $226 billion.

Volatility ahead of the US election and around the unwinding of the so-called yen carry trade helped propel trading revenues higher than Wall Street analysts and investors had anticipated.

But the banks have also gained large profits in the securitization trade, stimulated by the the highest emission level since 2007while a rebound in the activity of equity capital markets supports the trading of equity derivatives.

“Markets revenue collectively for banks has been stronger than we expected at the start of 2024,” said Mollie Devine of Coalition Greenwich.

“Following the high water mark of 2022. . . ending up in a similar place (to 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 growing competition from specialist electronic trading companies such as Citadel Securities and Jane Street.

The Big Five investment banks are on track to generate $112 billion in business revenue by 2024, according to estimates compiled by Bloomberg, which will eclipse it again in 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 rise 6.1 percent from 2023.

Of the big five US investment banks, only BofA is expected to comfortably earn more from trading in 2024 than in 2022 and 2023 – even though it has the smallest overall total. Jim DeMare, who runs 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 volatility in the markets, lower interest rates, and higher regulatory and technological costs. Banks benefit when prices bounce instead of moving firmly in one direction.

Business activity was boosted by the Covid-19 pandemic, which marked a return to extreme bouts of market volatility, and geopolitical events such as Ukraine, as well as rising interest rates interest

The big banks have also benefited from rivals pulling out of the trading business – including Deutsche Bank get out of stock trading and the death of Credit Suisse – which allowed those still standing to capture more business.

“The top four or five (banks) have more market share today than they did 10 years ago,” said Gerard Cassidy, banking analyst at RBC.

Banks have focused on the financing activities of primary brokerage in shares and lending to private investment companies ​​in fixed income, valued by shareholders as more predictable companies .

Unlike 2022, when trading revenues were driven by movements in commodities and macro trading, equity derivatives, credit and securitization were the hot spots in 2024.

Investors typically avoid assigning a high valuation multiple to business activity because of its lack of predictability.

“In 2019 we had discussions with some clients about reducing or exiting low-performing businesses such as commodities and cash stocks. The dialogue has changed,” said Devine of the Coalition.

“Our customers do not expect a short-term step to the revenue levels of the pre-Covid markets.”