New Wall Street Trading Reality Eludes Obama
President Obama's View of How Good Wall Street Traders Have It Is in Need of an Update
Whether it is the best of times or the worst of times on Wall Street depends on where you sit: From a trading desk, the view is markedly different from that of the Oval Office.
In an interview this week, President Barack Obama said that, "Right now, if you are in one of the big banks, the profit center is the trading desk, and you can generate a huge amount of bonuses by making some big bets."
That is in marked contrast to the numbers being reported by big banks. In the first quarter, most of the biggest banks saw trading revenue decline year over year. More broadly, the Office of the Comptroller of the Currency this week reported that total U.S. bank tradinfor a first quarter since 2008.
—g revenue declined 18% from a year earlier and was at its lowest ebb
Meanwhile, J.P. Morgan JPM +0.14% Chase and Citigroup C +0.48% already have warned that trading revenue in the second quarter will be down from the prior year.
All this reflects both a more subdued trading environment, marked by low volatility and an unexpected downward turn in long-term bond yields, as well as structural changes on Wall Street. The latter is in large part due to regulatory changes such as the Dodd-Frank Act and the "Volcker rule" prohibiting proprietary trading.
Consider that in 2013, J.P. Morgan generated a return on equity in its corporate and investment bank of 15%, versus 23% for its consumer-and-community-banking business. And over the past two years, both revenue and net income from the consumer-and-community-banking business have outpaced that of J.P. Morgan's corporate and investment bank. A similar picture emerges at Bank of America. BAC +1.14%
While more needs to be done to make big banks and the financial system safer, traders aren't partying like it's 2006.