Volatility -- good for S&T bonuses?
So with all of this crazy volatility (I just read that trading volume for both securities and options contracts is twice the average), does that mean that S&T people at the BB are going to clean up this year with bonuses?
As it relates to derivatives, I can confirm that Indeed it has been really good so far for us. Like someone above said, though, it has gotten to the point where liquidity is really constrained and volume suffers. With that said, vol is how equity derivs makes money.
Think I saw an article about JP morgan being up $300mm in revenue compared to this time last year in equity derivs, so desks across the board are doing well.
In the end, though, the bank probably suffers more through other areas than what it gains on derivatives. Plus lower rates means means lower NIIC, etc. as well so banks are getting squeezed. It'll be interesting to see how bonuses pan out this year. I'll probably end up with a stub, though.
Commission based sales guys are doing very well right now. Lots of vol and dealers not taking down risk means that everything is riskless right now and bid ask is huge. You don't need balance sheet and new issue to make money in this market. Guys are making points on bonds that had a 3bp bid offer 3 weeks ago. Will be interesting to see how long the bid from banks/insurance lasts on to absorb the ETF selling. Things keep leaking wider but trades are happening. Its always fun when customer offers are just indications and the seller hits a huge back bid.
Trading is doing broadly very well during this (everyone seems to be making a lot of money right now), but the bigger issue is that bank as a whole won't be (ex. investment banking likely to be completely dead in every aspect). If trading smashes it, but investment banking revenues is down 50% on the year, it doesn't really matter... In some cases, it might be even worse for those with big corporate or consumer banking businesses (ex. JP, Citi, BAML, etc.)
TBH I think most people in the industry are aware of this, now just making sure get something decent by making money. So in the end, bonuses will more than likely be flat or maybe even down. The good news is this isn't a "financial" crisis so there's low risk of the ban blowing up and losing our jobs :)
I mean in ib you were gonna be doing busy work regardless lol
Yeah unfortunately, given what's going on, I highly doubt any companies are looking at M&A right now or financing any type of expansion (more like survival mode) - likely to take some time to get back on their feet too, as no one really knows when this will get better
As for your second question, yes it has been insane. I'm in a macro type trading seat. I've been in the market for about 5 years now, and it's the most on edge and most volatile I've ever seen (by magnitudes. I'm glued in most of the time and tbh it's been exhausting - huge difference to what it was just a few months ago or even the past few years at the most volatile times. Even on screen for markets that are normally very liquid (ex. gold futures or fx pairs), spreads right now are 5-10x what they used to be in like 25% of the size bid/ask which obviously means a lot more opportunity for us to capture. It also now doesn't take much size to make a lot of money and at the same time it doesn't take much to lose a lot of money lol. I've heard that although we're not quite there yet, it's the closest to the crisis environment since...
If you want an example of how crazy things are, look at the price of palladium in the past two weeks or what USDJPY has done in the past few days compared to the range over the past few years... Vols are at levels that are basically unheard of and because a lot of people got used to low vol environments, they are getting destroyed. Some markets are just totally broken.