Photographer: David Williams/Bloomberg

Wall Street’s Top Stock, Bond Traders Just Got Harder to Catch

  • JPMorgan takes in almost a third of every fixed-income dollar
  • Morgan Stanley widens lead in equities over Goldman Sachs

Wall Street’s top stock and bond traders are putting more distance between themselves and their closest competitors.

JPMorgan Chase & Co. generated $3.96 billion in fixed-income trading revenue in the second quarter, accounting for almost one of every three dollars generated by the five biggest U.S. banks for the period. Morgan Stanley, No. 1 in equity trading, posted $2.15 billion in revenue from that business Wednesday, beating analysts’ estimates and opening its largest lead since wresting the title from Goldman Sachs Group Inc. a year ago.

“The strong will get stronger,” said Christopher Wheeler, an analyst at Atlantic Equities. “It becomes much more pronounced if markets improve even more because it’s the same clients just doing more stuff, and those clients are locked in to the biggest players.”

Years after new rules fundamentally changed the dynamics of Wall Street’s trading rooms, the most dominant banks in each market are tightening their grip. The results may clarify what the landscape of Wall Street will look like once companies adapt to restrictions that make inventory more expensive and outlaw trading for the firms’ own accounts.

Morgan Stanley’s equities business was helped by strength in stock and derivatives trading, as well as prime brokerage, according to Chief Financial Officer Jonathan Pruzan.

“In equities, we maintained our leadership position and expect to be No. 1 globally,” Pruzan said on a conference call with analysts.

Goldman Sachs’s equities revenue declined 11 percent from the second-quarter of 2015 to $1.75 billion. The New York-based bank was No. 1 in equities trading as recently as the first three months of 2015.

JPMorgan’s fixed-income trading revenue rose 35 percent from a year earlier. Citigroup Inc., it’s next closest competitor, reported a 14 percent increase to $3.47 billion.

Executives at the top firms aren’t doing much crowing. The business is volatile and hard to forecast, they said during earnings conference calls with analysts. And none would characterize in any detail how July is shaping up.

“With respect to the third quarter, client activity is returning to more normal levels, and trading performance so far has been fine,” JPMorgan CFO Marianne Lake said July 14. The bank’s trading results could be called a “wash” compared with the first quarter, Lake said.

Bank of America Corp. Chief Executive Officer Brian Moynihan said there would be ups and downs in the business, even as his firm’s trading operation posted its best second-quarter revenue in five years.

Pruzan at Morgan Stanley said geopolitical uncertainty, marked by the U.S. election and negotiations over the U.K.’s vote to leave the European Union, may force customers to the sidelines and erode confidence in the markets.

“One can’t help but wonder about the sustainability of it,” said Steven Chubak, an analyst at Nomura Securities. “This year is definitely trickier to model, because the first quarter was a bit of an aberration, and there’s no historical precedent for the second quarter being better than the first.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE