Banks facing worst equities-trading revenue since 2006

Job Cuts

The number of front-office equities employees, who produce about half as much revenue per person as fixed-income salesmen and traders, has climbed 1 percent since 2009 at the 10 largest investment banks, while the ranks of their fixed-income counterparts have dropped 8.9 percent, according to data from industry analytics firm Coalition Ltd. That may change as companies are forced to respond to the volume drop, Staite said.

“With these volumes, you can’t just get paid for being there, for polishing the handle on the big brass door,” said James Glickenhaus, general partner at New York-based asset manager Glickenhaus & Co. “These banks are beginning to see that they’re going to have to start being more efficient, and I’m not sure they’re all going to do so well at that.”

Nomura Holdings Inc. said last month that it’s folding cash equities outside Japan into its Instinet unit, the brokerage it acquired in 2006. That may result in 200 job losses, according to a person briefed on the plans.

ING Groep NV, the biggest Dutch financial-services company, said yesterday that it will cut 130 jobs as it closes its emerging European equities operation. UniCredit SpA, Italy’s largest bank, said in June it would scale back its central and eastern European equities business.

‘Strategically Important’

While there are too many firms with equities units given the current volume, investment banks are reluctant to exit the business because it’s seen as necessary to securing underwriting deals and advisory assignments, said David Trone, an analyst at JMP Securities LLC in New York.

“In a normal business industry, there would be rationalization,” Trone said in an Aug. 29 interview on Bloomberg Television’s “Market Makers” program. “But you don’t have that happening because it’s a strategically important product to be in. It’s very hard to do these other things, like M&A, if you don’t have an equities business.”

Prime Brokerage

Amid the decline, the top equities-trading banks have suffered less than smaller players. Goldman Sachs, which generates the most revenue from equities, captured about 22 percent of the total for the top nine firms in the year ended June 30. That was more than 3 percentage points higher than in the previous 12 months. Credit Suisse, Morgan Stanley and New York-based JPMorgan, which ranked second through fourth in equities trading revenue in 2010, all gained share over the four quarters through June.

The top four firms have benefited from having the biggest prime-brokerage units, according to 2012 rankings from hedge- fund magazine Absolute Return & Alpha. Morgan Stanley Chief Financial Officer Ruth Porat has said the business, which provides services to hedge funds including trade processing and securities lending, helps drive other equities-trading revenue as clients are more likely to trade with the firm.

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