Wall Street firms’ equities-trading units aren’t getting much relief from the strongest stock rally since 2009, as sinking volume and already thin margins threaten to make their annual performance the worst in six years.
Bloomberg reports that third-quarter equities-trading revenue probably fell 14% from the same period in 2011, the fifth straight drop of more than 8%, according to estimates by Kian Abouhossein, a JPMorgan analyst. Full-year revenue at the five largest U.S. investment banks may be the lowest since 2006, UBS's Brennan Hawken wrote in a September 19th note to clients.
Equities trading, which generated $40bn for the nine largest global investment banks last year, has been an attractive business because capital requirements aren’t as strict as those threatening fixed-income returns. Lower volumes have damped that optimism as investors remain skeptical about the global economy, which may lead to job cuts.
'It’s already a business that was being run on quite thin margins', said Richard Staite, an analyst at Atlantic Equities LLP in London. 'Now you need to see more banks dropping out. The marginal players will have to or are already looking at these business lines and whether there is any justification for remaining in them'.
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