Bank of America's results confirm it fixed M&A, now it needs to address trading
Matthew Koder deserves some credit at Bank of America. Following the execution of his plan to hire 70 bankers to reinvigorate BofA's M&A business, M&A revenues at the bank have soared. In 2020, the bank may want to focus on hiring some new traders and salespeople instead.
Around 50 managing directors joined BofA's investment bank in 2019. According to the bank's fourth quarter results, released today, revenues in the M&A advisory business rose 16% year-on-year - more than at Goldman Sachs, JPMorgan, or Citi. Equity capital markets (ECM) outperformed too.
However, while investment banking is becoming a hotspot for BofA, the same cannot be said of sales and trading. As the chart below shows, Bank of America lost share in both fixed income currencies and commodities (FICC) trading and in equities trading in 2019. BofA's FICC trading revenues were steady during the year while revenues at rivals rose. BofA's equities revenues fell nearly 9% - by less than at Citi, but by more than at Goldman and JPMorgan.
While Matthew Koder runs corporate and investment banking at BofA, the global markets business is run by Fabrizio Gallo in equities and by Jim DeMare, Bernie Mensah and Sanaz Zaimi in fixed income trading. DeMare and Mensah are co-heads of fixed income trading. Zaimi, who is based in Paris and has recently gone on maternity leave according to insiders, is head of fixed income sales. Both global markets and global banking are overseen by BofA president Tom Montag.
New managing directors do not come cheaply. Although revenues across BofA's global banking business rose by 9% in 2019 compared to 2018, net income in the division fell by 3% on the back of higher costs. However, profits also fell marginally (by 1%) in BofA's global markets business, where there was no big push to recruit new senior staff.
Will BofA add some new traders in 2020? Privately, sources talk of exits - particularly in the equities division where BofA's global share of around 9% puts it well below the market leaders (Goldman Sachs, Morgan Stanley, JPMorgan) but at the top of an increasingly squeezed second division which also features Citi.
In fixed income sales and trading, BofA ranks around third place behind JPMorgan and Citi according to analysts at JPMorgan. However, those two banks increased fixed income revenues at double digit percentage rates last year while BofA's revenues remained stable, and Goldman Sachs began catching up. There may be a good reason for slower growth. - BofA's business is skewed towards credit trading, which accounts for around 60% of its total revenues. Citi had a strong year in credit trading, but Goldman Sachs said today that it was macro trading in particular that did well in the fourth quarter. Blame the mix.
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