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August 23, 2005

Trading Revenues Mixed At Midpoint of 2005

By Peter Chapman

Wall Street's equities sales and trading departments are doing a little better this year than last year. During the first half of the year, eight of the top 11 banks took in $11.4 billion from their institutional equities' operations. That compares to $10.7 billion in the same period last year-a 6.4 percent rise.

"We've had a terrific first six months in equity derivatives," Sam Molinaro, Bear Stearns' chief financial officer told analysts recently, "largely on the back of significantly increased customer activity."

Strong results at Bear Stearns were also fuelled by cash equities. Offsetting the prosperity was a decline in the takings of its NYSE specialist unit, Bear Wagner. In total, Bear Stearns grossed $703 million in the first half of the year, up 30 percent from the first six months of its fiscal 2004.

Other firms having a banner year are Banc of America Securities (up 43 percent), Citigroup (up 13 percent) and Merrill Lynch (up 21 percent). Merrill's results though include a sizable gain on a private equity investment. Other than that "equity-linked and cash equity trading revenues declined," Merrill reported in a filing with the Securities and Exchange Commission.

Other shops reported similar problems with their customer-facing businesses. Goldman Sachs saw higher revenues in its second quarter from proprietary trading, but lower revenues in its customer businesses such as convertibles.

JP Morgan turned in the worst performance of the majors. The unit of the big bank took in $628 million in its first half, down 21 percent from the same period last year. JP Morgan blamed its problems on its program trading department.

As for Lehman Brothers, it blamed a 4 percent decline in revenues on general market conditions. Business was especially tough for Lehman in convertibles, it reported. Lehman grossed $1.1 billion.

Morgan Stanley, despite internal turmoil, has managed to increase its equities business by 5 percent so far this year. The big broker took in $2.3 billion during its first half. "Turnover has been higher than in previous years," Morgan Stanley's CFO, David Sidwell, told analysts. "But the business has been able to execute well."

The remaining three banks are all European: Credit Suisse, UBS and Deutsche Bank. They had not reported their results when Traders Magazine went to press. The top eleven banks account for about 70 percent of all listed trading, according to Thomson Financial.