Business & Investment

The end of the trading boom casts a cloud on Wall Street bank profits Reuters

© Reuters. File Photo: On February 9, 2016, the Goldman Sachs ticker symbol and information will be displayed on the floor of the New York Stock Exchange (NYSE). Goldman Sachs Group Inc.’s quarterly profits fell by more than half, with earnings falling to their lowest levels.

(Modify to add the quotes dropped in paragraph 14)

By Matt Scuffham and Elizabeth Dilts Marshall

New York (Reuters)-The pandemic trading boom has begun to slow for Wall Street banks, including Goldman Sachs (NYSE :) and Morgan Stanley (NYSE :) Reinvent those businesses.

The COVID-19 pandemic has transformed the trading desks of banks that have been struggling with lethargic earnings growth since the financial crisis of 2007-2009, as profit margins declined due to tighter regulations and technological advances.

Traders were lagging behind in most investment banks, which made them a central stage last year, generating bumper revenue and profits as clients scrambled to relocate their portfolios in highly volatile markets. It was.

The large-scale infusion of cash into the capital markets by the Federal Reserve has led to unprecedented liquidity and trading activity as investors sought monetization opportunities.

But as activity returns to a more normal level, discussions are returning on how the trading business will evolve and the strategies adopted by the banks that depend most on them.

“At some point, the Fed will stop, and once it stops, it will return to the central question of how to make money in this business,” said Dick Bob, a longtime bank analyst at Odeon Capital Group. “. “I don’t think it will bring attractive growth in the future in its current form, so we need to restructure our trading business.”

The largest US bank reported a drop in earnings from fixed income, currency and commodities (FICC) trading in the second quarter, facing a tough comparison during the same period last year when the COVID-19 pandemic first occurred. It made the market enthusiastic.

Equity trading was better maintained, with three of the five investment banks in the United States making more money.

Nonetheless, executives remain uncertain about what the “new normal” of trading activity is and when the market will settle to that level.

“We are all trying to understand that,” Morgan Stanley Chief Financial Officer Sharon Yesaya said in an interview.

Overall trading revenues have fallen by about one-third since this time last year, well above pre-pandemic levels for the largest Wall Street banks.

“We won’t be back to 2019 levels soon,” Goldman Sachs CEO David Solomon said in an interview with CNBC.

Goldman Sachs and Morgan Stanley executives point out that European rivals will withdraw and trade more on behalf of corporate clients, expanding the overall market and increasing market share.

“The (FICC) wallet feels bigger than it was before the pandemic,” said Morgan Stanley’s Yesaya. “We have a larger market share than before.”

However, some analysts are skeptical.

Mark Doctor Off, Global Co-Head of MUFG’s Financial Institutions Group, said:

According to analysts, Goldman Sachs and Morgan Stanley, the banks most dependent on capital markets, will face challenges as market activity returns to more normal levels.

These banks have enjoyed more profits than other banks as last year’s trading and investment banking boom boosted earnings growth and caused stock prices to skyrocket.

Morgan Stanley shares are currently trading at more than three times their value at the start of the pandemic. Goldman Sachs stocks are almost three times more valuable than when COVID-19 was a hit.

The end of the trading boom casts a cloud on Wall Street bank profits Reuters The end of the trading boom casts a cloud on Wall Street bank profits Reuters

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