It was a weird year on Wall Street.
While capital markets sputtered for much of the year, volatility pushed trading revenues to their highest levels in well over a decade. With inflation running at a 40-year high, banks were forced to set aside billions in credit reserves. That hindered profits even as the Federal Reserve’s campaign to tamp down prices — marked by aggressive rate hikes — boosted net interest income for the country’s largest lenders.
Along the way, firms cajoled even more of their staffers back to the office. Job cuts hit the cryptocurrency and fintech industries, which had long been recruiting workers away from Wall Street. And, following a sweeping probe, regulators cracked down on bankers using messaging apps for banter and other business communications.
Here’s a look at this year’s winners and losers across the US finance industry:
Winners: Macro Traders
Wall Street’s biggest trading desks are set to notch $109.6 billion in revenue for the year, the best performance since 2009. Most of that will come from fixed-income trading desks, where volatility handed commodities, currencies and rates traders one of their busiest years ever.
Nowhere is this more evident than at JPMorgan Chase & Co., where revenue is expected to jump 6.5% to $29.2 billion, the biggest haul among the five largest Wall Street banks. That includes a whopping $18.8 billion from fixed-income trading. That business got a new leader this year in Pranav Thakur, a 15-year veteran of the bank who previously oversaw foreign-exchange and emerging-markets trading globally.
Citigroup Inc.’s traders, led by Andy Morton, are set to hand the bank their second-best performance of any year dating back to 2009, an especially impressive feat given the bank’s push to rein in risk and limit business with less-lucrative clients. Morton took over as sole head of the trading division earlier this year after the departure of co-head Carey Lathrop.
Losers: IPO Bankers
Things are far less rosy for investment bankers, especially those involved in putting together initial public offerings. In all, equity-underwriting revenue is poised to plummet 77% this year to $4.2 billion across the five biggest Wall Street banks, the lowest level on record, according to data compiled by Bloomberg Intelligence. Last year, Morgan Stanley alone raked in more than that in IPO fees.
And the drop is hitting home. Bankers are paid on an “eat what you kill” model. That means firms are already warning staffers that their bonuses — which often make up the majority of pay for senior employees — will be down significantly this year. JPMorgan, Bank of America Corp. and Citigroup are all considering slashing bonus pools for their investment bankers by as much as 30%, Bloomberg News reported earlier this month. Some firms are planning to give low performers no reward at all.
Winners: Bank Loan Underwriters
The Fed’s aggressive plan to damp inflation with higher interest rates might have stymied capital markets this year, but it was good news for the trillions of dollars in loans banks are sitting on.
Banks were so eager to take advantage of rising borrowing costs that many lenders raised their rates within mere minutes of a Fed decision. Fifth Third Bancorp, for instance, took just eight minutes to inform customers that its prime lending rate would rise to 7.5% following the central bank’s most recent hike. In all, the four biggest US banks are expected to soak up $211 billion in net interest income this year, a 22% increase from 2021 and the biggest haul on record.
What’s more, while lenders have been eager to charge higher rates to borrowers, they’ve been slower to pass on benefits to savers who have stashed trillions of dollars of deposits with the country’s biggest banks, boosting their profitability. Industrywide, net interest margin — the difference between what banks collect on loans and pay for deposits — soared to 3.12% in the third quarter, reversing a yearslong slump.
Losers: FTX Investors, Customers
The final months of 2022 will be remembered forever as crypto’s “Lehman moment.” In November, the digital-asset exchange FTX blew up in a truly spectacular fashion, followed quickly by the arrest of founder Sam Bankman-Fried, who faces charges of defrauding investors in his crypto empire.
The 30-year-old crypto maven had raised more than $1.8 billion from the likes of SoftBank Group Corp., Temasek Holdings Pte., Tiger Global Management and Insight Partners. With the bankruptcy filings of more than 130 entities tied to Bankman-Fried, the equity stakes of all who had backed FTX effectively plunged to zero.