Equity traders are crushing it as big banks celebrate a huge six months

  • Wall Street banks have followed up their stellar 2018 debut in stock trading with another robust performance in equities in the second quarter.
  • JPMorgan Chase, Citigroup, and Bank of America Merrill Lynch all saw strong second-quarter earnings in the past week, with each reporting a second consecutive standout performance from their equities divisions.
  • Derivatives trading, which has particularly benefited from the rebound in volatility, has played a key role in the first half of the year.
  • Equity derivatives traders have become the focus of an intense Wall Street hiring battleground amid their improved performance in 2018.

The first quarter wasn’t a one-off: Wall Street banks have followed up their stellar 2018 debut in stock trading with another robust performance in equities in the second quarter.

JPMorgan Chase on Friday reported its second consecutive record quarter in equities, boosting revenues 24% from the previous year to $US2 billion.

That same day Citigroup reported a 19% increase in equities revenues to $US864 million, which follows a 38% uptick to $US1.1 billion in the first quarter.

And on Monday, Bank of America Merrill Lynch followed up those results with $US1.3 billion in second-quarter equities revenues, a 17% increase from 2017. The bank reported record equities revenues in the first quarter of $US1.5 billion.

And just like the first quarter, equity-derivatives traders played a key role in driving the rebound in equities, a moribund line of business that suffered significant declines at Wall Street banks in recent years.

JPMorgan CFO Marianne Lake and Bank of America CFO Paul Donofrio each specifically called out derivatives for outsized contributions to their equities numbers, just as they did in the first quarter. While Citi didn’t laud a particular desk – it hailed “growth across all products” – it noted its results reflected “the benefit of continued higher market volatility,” an environment that derivatives traders tend to thrive on.

Renewed market volatility – which was absent much of 2016 and almost all of 2017 – has revived banks’ stock-trading businesses in 2018. It’s a trend that has been epitomized by the equity derivatives sector, which sells products to institutional investors that allow them to hedge their stock positions or make directional bets on a particular stock, sector, or index.

Investors see less of a need for such products when the market calmly moves in one direction, as it primarily did the previous two years.

The volatility drought ended in early February, when the CBOE Volatility Index, a measure of implied volatility also known as the VIX, surged as much as 200% from its low point to its high point during the first full week of that month.

The frenetic trading environment meant tons of business for banks as they rushed to accommodate clients trading the VIX and other S&P 500 derivatives products.

But volatility has remained elevated amid the trade war President Donald Trump has pushed for, as well as investor concern over political uncertainty in Italy and Spain during the second quarter.

That’s helped keep the first-quarter derivatives binge going, which has padded earnings but has also had the knock-on effect of sparking a talent war over derivatives professionals.

Equity derivatives traders have become the focus of an intense Wall Street hiring battleground, with more than 40 moves at the level of vice president or higher in equity derivatives in the US this year.

We’ll likely get more insight into the role of derivatives trading in the equities rebound this week as Goldman Sachs and Morgan Stanley – two of the most vaunted trading houses on Wall Street – report earnings Tuesday and Wednesday, respectively.

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