12/27/16

So take these retail banks, known in Aus as the "Big 4 Banks", and their market divisions:
http://www.anz.com/corporate/markets/

https://www.commbank.com.au/corporate/solutions/gl...

http://www.nab.com.au/business/international-and-f...

https://www.westpac.com.au/corporate-banking/finan...

Compare this to the S&T as your investment bank, say JP Morgan, GS, etc.

What's the difference? Say specifically if were an FX trader at any of the above Big 4 Banks. Am i merely managing risk, and not adding to the bank's P/L? And in which case the bank would derive its profits from FX service? Or the commodity trading service?

Very noob question, but appreciate answers.

Comments (10)

1/4/17

fuckin bump.

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Financial Modeling

1/4/17

I'm not sure I completely understand where you're coming from.. Basically there is no difference. All four Australian banks have S&T markets divisions in one way or another (although it's termed differently). I know one Aust bank in particular makes significant profits from FI and commodity trading. And as for an FX Trader - there are both risk management and front office FX roles. One books deals/assists with hedge strategies etc for clients, the other managing foreign exchange risk with a profit where possible. The latter is certainly more prestigious. On the client facing s&t.. lots of fx, commodities, interest rates.. not much equities

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1/5/17

Ah, Macquarie. Deliberately excluded that one, since they have an IB arm, and also a RE private equity business. To my knowledge, the Big 4 banks listed above are just retail (right?)

I thought the retail banks are not investment banks, and so they wouldn't have trading desks geared toward a P/L, but more on risk management? I'm really ignorant on trading....something i'll brush up on when i have time.

Array

1/5/17

Should be a similar deal at both, but at IBs you will be put straight into S&T/Markets if you get into that division, whereas for the retail banks (Westpac aside) you will be forced to do rotations in all the other Institutional Banking stuff (Corp lending, Equity Analysis maybe even M&A). I know quite a few of my colleagues at Big 4 Banks were quite frustrated with this as the people in Trades v Sales v more tradition IB have very different characteristics.

Banks will derive the majority of their profits from being Brokers/Market Makers on paper, there is still some pure prop/position trading that goes on under the guise of Market Making but this has obv reduced in recent years.

1/5/17

Dumb Question: So how does a Big 4 bank make money from FX trading? And is it the same sort of business that S&T at say DB/GS/MS/etc would find attractive?

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1/6/17

I don't think they'd have many resources geared towards taking big positions, I might be wrong though - I just don't think it's a big thing in Aus and if it is it is very very far from the reach of a graduate. Aussie retail bank traders have been under a huge amount of scrutiny from the media (see rate rigging w/ ANZ and Westpac in the last couple years, as well as critiquing their corp culture).

They'd make their money by making markets on exchange rates, just as you would if you went down to the bank and asked to exchange cash - they'd make money from spread. This can be quite substantial when you have big institutional clients in different countries with different demands for currency - obviously they'd ideally be flat, but they end up taking positions due to the nature of what they're doing. That's standard for any market maker, the challenge is to manage risk to an appropriate level and adjust your prices to make sure you're not getting done.

1/7/17

Insightful. Thanks dude. How the FX trading business works just clicked thanks to this ^

Array

1/6/17

oh and of course they'd be big on FX derivatives (options). As for whether the BB are interested in that stuff, they probably have their resources allocated elsewhere a bit more efficiently.

1/7/17

wrong perception.

ANZ, ANB, WESTPAC, MaQc are now less regulated than U.S counterparts are taking the space left by JP, GS, Citi, BofA.

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1/7/17

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