4 minutes, by Read this article (Refiles to add dropped quotation mark in paragraph 14) On the floor of the New York Stock Exchange (NYSE) on February 9, 2016, a screen displays the ticker symbol and information for Goldman Sachs. As market volatility damaged Goldman Sachs Group Inc’s bond trading and investment banking divisions, the Wall Street bank’s quarterly earnings fell by more than half and revenue fell to its lowest level in more than four years. Brendan McDermid/Reuters (Reuters) – NEW YORK (Reuters) – For Wall Street banks, the post-pandemic trading boom has begun to cool, putting renewed pressure on legends like Goldman Sachs and Morgan Stanley to rethink their businesses. The COVID-19 outbreak revolutionized banks’ trading desks, which had been struggling to earn revenue in the years following the financial crisis of 2007-09 due to tighter rules and technical developments crimping margins. Traders, who had previously been a laggard in most investment banks, rose to prominence last year, bringing in record income and profits as customers sought to reposition their portfolios in very unpredictable markets. The Federal Reserve’s huge cash infusion into capital markets resulted in extraordinary liquidity and trading activity as investors looked for ways to profit. However, now that activity has returned to more normal levels, the focus has shifted back to how trading businesses will evolve and the techniques used by banks that rely on them. “The Fed will eventually stop, and when it does, you’ll be back to the core question of how to earn money in this company,” said Dick Bove, a longtime bank analyst with Odeon Capital Group. “Trading enterprises need to be restructured because, in their existing form, I don’t believe they provide attractive development in the future.” In the second quarter, the largest U.S. banks reported a drop in revenue from fixed income, currencies, and commodities (FICC) trading, citing difficult comparisons to the same period last year, when the COVID-19 epidemic first struck, driving markets into a frenzy. Trading in stocks performed better, with three of the five U.S. investment banks reporting increased revenue. Despite this, executives are unsure what the “new normal” for trading activity will be and when the market will reach that level. In an interview, Morgan Stanley Chief Financial Officer Sharon Yeshaya said, “We’re all trying to figure that out.” Despite the fact that overall trading revenue is down by almost a third from this time last year, it is still substantially above pre-pandemic levels for the major Wall Street banks. In an interview with CNBC, Goldman Sachs Chief Executive Officer David Solomon remarked, “We’re not going back to 2019 levels anytime soon.” As European rivals recede, Goldman Sachs and Morgan Stanley executives point to a larger total market and an increase in their market share, as well as increased trading on behalf of corporate clients. Yeshaya of Morgan Stanley stated, “The (FICC) wallet feels bigger than it was pre-pandemic.” “We’re capturing a larger share of the market than we were previously.” Some experts, however, remain unconvinced. Mark Doctoroff, MUFG’s worldwide co-head of financial institutions business, said, “I would be reluctant to suggest the amount of that market has expanded.” Analysts predict that once market activity returns to more normal levels, Goldman Sachs and Morgan Stanley, the banks most reliant on capital markets, will encounter issues. Those banks gained more than others from the trading and investment banking boom of the previous year, which boosted their profitability and stock values. Morgan Stanley’s stock is now worth more than three times what it was before the outbreak. Goldman Sachs’ stock is now roughly three times what it was before COVID-19. Matt Scuffham contributed reporting, and Dan Grebler edited the piece./n
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