First half trading revenue soars 32%; RBC’s U.S. wealth unit on the prowl

Wall Street Journal

Raking it in

“Investment-banking and trading revenues hit an eight-year high in the first half of 2020, as “global banks raked in fees from companies scrambling to raise cash and panicky investors scrambling to sell, then buy again as markets surged. Revenue in these traditional Wall Street businesses was 32% higher than in the same period last year, bucking years of sideways and downward drifts.”

“The surge is being driven by two factors: huge need for cash from pandemic-hit companies and the Federal Reserve flooding the system with money, which props up market prices and nudges investors into its riskier corners. The result is a borrowing boom that has pulled companies back from the ledge and lifted Wall Street’s fortunes.”

Excess liquidity

“The interest rate that European banks use to lend among themselves dropped to a record low this week in a sign of how credit markets have been distorted by central banks’ aggressive measures this year. The euro short-term rate, known as €STR, slipped to minus 0.555% Wednesday, from minus 0.539% at the beginning of the year. The subzero rates essentially mean that banks and other financial institutions are offering to pay rivals to take money off their hands, albeit for a short period.”

“The recent decline in borrowing costs is a result of the European Central Bank’s massive monetary stimulus program, which includes generous loans made to the region’s banks to bolster the flow of money to businesses and households. That has left credit institutions so flush with cash that they currently hold about €2.9 trillion ($3.44 trillion) more than they have to for reserve requirements, a phenomenon known as excess liquidity.”

Out from under

"Malaysia has dropped criminal charges against units of Goldman Sachs Group Inc. over the bank’s role in the alleged theft of billions of dollars from a government investment fund, a key step under the terms of a recent $3.9 billion settlement."

Financial Times

Case closed

Munich’s criminal prosecution office said it “has dropped its investigation into two Financial Times journalists who were accused by the German financial watchdog of potential market manipulation over their reports about accounting irregularities at payments processor Wirecard.” The prosecutor said its investigation “did not reveal sufficient evidence to support the suspicious facts” raised by BaFin, the German watchdog. However, it said “its parallel criminal complaint against short-sellers alleging market manipulation on Wirecard shares was still ongoing.”

“The Munich prosecutor said its investigations found that the FT’s reporters ‘are basically correct and at least from the point of view of the information available at the time, it was neither false nor misleading. There were no direct, concrete contacts with short-sellers.’ ” The criminal complaint against the two reporters “was filed by BaFin in April 2019 after the FT published articles that year alleging that Wirecard had been inflating its revenues by using forged and backdated contracts that raised questions over the company’s accounting.”

Paradox

Traders on Wall Street and in the City of London face a paradox. “On the one hand, markets have moved to electronic platforms and can theoretically be traded anywhere. But financial institutions have also spent lavishly on flashy trading rooms, assuming that humans must sit together to stare at that technology. Might the experience of Covid-19 help resolve this paradox?”

“Over the past six months, lockdowns have done what digital innovation alone could not: forced financiers to rely on cyber links. Many trading floors have operated with skeleton staff. Even venues that have ‘reopened,’ such as the New York Stock Exchange in late May, have cut the human presence dramatically. Top executives are now reviewing this experience. And, behind the scenes, they are drawing several lessons that investors need to watch — not least as they could subtly reshape the future contours of finance.”

Elsewhere

First dibs

JPMorgan Chase “has first right to buy a 20% stake in its Chinese securities joint venture that has been put up for sale by one of its local partners,” Reuters reported. “The potential transaction could take the U.S. bank’s stake from 51% to 71% as it edges closer to full ownership of a securities entity in China at a time when geopolitical relations between the United States and China remain fragile.”

Poaching

Royal Bank of Canada’s U.S. wealth management unit “has been luring teams managing bigger amounts of assets from much larger rivals, driving a surge in revenue from the new recruits and helping it outperform others in the industry,” Reuters reported. Over the past few months, the U.S. unit of Canada’s biggest bank has poached advisers from competitors Morgan Stanley, AllianceBernstein, Wells Fargo, Bank of America’s Merrill Lynch and UBS.

“RBC’s recruitment push helped lift average revenue per new advisor, or production, by 43% year-to-date through July from the comparable year-earlier period, even as the number of hires remained flat.”