JPMorgan Beating Deutsche Bank in Bond Measure That Matters Most

Some Wall Street banks are better than others at focusing on their most-profitable debt-trading desks.

JPMorgan Chase & Co., for example, generates the most fixed-income revenue globally even though it ranks fourth when measured purely by trading volume, according to Greenwich Associates data. On the flip side, Deutsche Bank AG accounts for the biggest proportion of trading but wins a smaller share of the revenue than both JPMorgan and Citigroup Inc.

As new regulations prompt the world’s biggest banks to cut billions of dollars of assets from their balance sheets and dismiss thousands of employees, they’re being forced to make hard decisions about where to devote their energies.

And while being the biggest bond house in the world will always hold a certain allure, it’s not necessarily quite the cash cow it once was. This reality seems to be sinking in at Deutsche Bank. Executives are considering shrinking the bank’s trading businesses as part of an effort to bolster earnings, a person familiar with the matter said Monday, asking not to be identified speaking about private discussions.

“It’s a profitability game now,” said Kevin McPartland, head of research for market structure and technology at Greenwich Associates, a Stamford, Connecticut-based research firm. “You can have the huge investor client that does tons and tons of flow, but those same clients often are demanding. You’re giving them better pricing, you’re making less money per trade.”

Trading Commissions

Both Amanda Williams, a Deutsche Bank spokeswoman, and Tasha Pelio, a JPMorgan spokeswoman, declined to comment on the bond trading figures.

It’s no secret that some forms of debt trading are more lucrative than others. U.S. government bonds change hands much more frequently on average than riskier corporate debt, but pay much smaller broker commissions per trade.

The one big caveat with riskier debt businesses is that banks have to hold a greater amount of capital to offset potential losses in any inventories of the securities they hold. This has weighed more heavily on bank profits since the Basel Committee on Banking Supervision passed new capital rules to prevent a repeat of the 2008 financial crisis.

Deutsche Bank dominates fixed-income globally, with 10.1 percent of the activity, a 2014 Greenwich Associates survey shows. Yet it takes in just 9.1 percent of the revenue, the data show.

JPMorgan’s Revenue

JPMorgan, meanwhile, captures 10.5 percent of the revenue while only accounting for an estimated 9.1 percent of fixed-income business globally.

Banks that get most of their flow from lower-margin products, such as U.S. Treasuries or government-backed mortgage debt, tend to have higher market share than revenue share, McPartland said.

Generally “the more volume you handle the more money you make,” he wrote in a post Wednesday on Greenwich Associates’ website. “But as with all things financial markets, there is more to it than that.”

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