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GCM Worldwide Reviews Equity Fluctuation’s Impact on Investment Banks, Looks to Exchanges in Short to Midterm

08-16-2011 07:48 AM CET | Business, Economy, Finances, Banking & Insurance

Press release from: GCM Worldwide

Unprecedented swings in the equity market have analysts pondering whether this August’s results will lead to profits or loss for Wall Street’s big investment banks.
Instability and massive trading volume may help this quarter’s results in a historically weak period, GCM Worldwide analyst Arthur Melnick said in a note this week, explaining that bank trading positions (many of which have been closely guarded secrets) will determine the final result.

The five primary stateside investment banks have reported trading revenue for the first six months of 2011 that fell 13 percent from 2010. The firms are endeavoring to turn around trading results as the DJIA posted more than 400 point moves over the course of just four days, an unprecedented event.
“It is always difficult to know how banks have positioned themselves during this volatility and what overall result that will leave us with,” said Kyle Ellington, a senior analyst at GCM Global “Equities trading, by the very nature of the business, tends to have comparatively little positioning risk, fixed-income trading, on the other hand, tends to have significantly more.”

Major moves in the U.S. Treasury and equity markets have raised questions about trading results at the five largest stateside investment banks. The firms posted their fifth straight quarterly decline in the second quarter, and July was “slower than most analysts forecast,” Ellington commented in an Aug. 11 note. Spokesmen for the banks declined to comment.

Trading equities and fixed-income products accounted for 23 percent of total revenue at the five banks last year, ranging from 56 percent. to 16 percent . The firms are likely to benefit from higher equity volumes. Average daily volume on major U.S. exchanges has climbed to 9 billion shares this quarter. That compares with 7.14 billion in the second quarter and 7.66 billion in the third quarter of 2010.

Banks may benefit from the market fluctuations depending on the success of their principal bets and whether clients continue to stay active in the markets or pull back. The GCM Worldwide analysts agree that the recent turmoil has been a net positive for U.S. exchanges. Those companies have been moving to expand into derivatives, technology services, and heavier investment in the commodities market.

U.S. options volume has risen in excess of 73 percent this month, according to a release yesterday from GCM Worldwide’s analysts fronted by Arthur Melnick “ Frankly, it would be hard to expect these unprecedented volumes to continue very far into 1st quarter 2012, but we do strongly feel that the current volatility and resultant bump in volumes continue to result in a significant boost to what has traditionally been a weaker yearly quarter across the entire gamut of exchanges,” concluded Melnick.

GCM Worldwide is a New York based investment firm offering the full range of investment, banking and financial services.

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New York, New York
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