By Pam Martens and Russ Martens: July 30, 2019 ~
Here’s how to sum up the stock (equity) trading slowdown on Wall Street in one sentence: there are too many trading firms chasing too few investors wanting to trade. Wall Street has spent tens of billions of dollars over the past decade jazzing up its artificial intelligence/micro-second trading technology and too little time building confidence among the American people that Wall Street is a safe place to handle investment savings. The average American has moved the stock allocation portion of their portfolio to low-cost, passive index funds because of the risks and high fees in Wall Street’s proprietary funds. Hedge funds are now sitting on their hands as they bleed assets, shell-shocked from attempting to trade a market that can flip on a dime with each new Tweet from the President of the United States.
Bloomberg News reported last evening that Citigroup was planning to cut almost 10 percent of its equities trading unit staff following a precipitous decline of 17 percent in its equities trading revenue for the first half of 2019.
That follows the July 7 news from Deutsche Bank that it was trimming 18,000 jobs over the next three years and completely exiting its stock trading business.
In March, Kevin Dugan at the New York Post reported that Goldman Sachs was laying off workers, including some traders in its equities trading unit.
The backdrop for all of these job cut announcements involving stock trading on Wall Street was the March 22 report from the Office of the Comptroller of the Currency (OCC) on the stock trading collapse that occurred in the fourth quarter of last year. The report showed that equity trading had plunged 88.6 percent in the fourth quarter of 2018 versus the fourth quarter of 2017 at the bank holding companies, which includes the results of the large commercial and investment banks. Trading was down an even more staggering 91.7 percent from the third quarter of 2018.
The OCC reported that equity trading revenue had plunged to multi-year lows, registering an astonishingly weak $441 million in the fourth quarter of 2018 at the bank holding companies on Wall Street. That compared to $3.86 billion in the fourth quarter of 2017; $3.0 billion in the fourth quarter of 2016; and $3.7 billion in the fourth quarter of 2015.
Stock trading revenues at the bank holding companies on Wall Street bounced back sharply in the first quarter of this year to $9.2 billion according to OCC data but there has obviously been a renewed struggle in the second quarter.
There was a day when Wall Street was all about stock trading. Today, under the universal banking model, no one has a clue why Wall Street exists. It’s a jumble of trillions of dollars in derivatives, secretive Dark Pool trading of their own stock, stock buybacks to artificially juice earnings, algorithms, indecipherable prospectuses on securitized subprime debt, revolving doors to Washington, multi-billion dollar settlements and non-prosecution agreements with the Justice Department, and a lot of billionaires in corner offices.