Making money on Wall Street isn’t what it used to be. Revenues from fixed-income trading–the lifeblood of Wall Street banks in recent years–is shriveling. A decline in trading has been prolonged and a quick rebound doesn’t look promising. To stay in the business, more banks are going to look to cut costs. “We believe that a combination of factors has increased the pressure on investment banks to reconsider partnerships,” wrote financial industry consulting firm Boston Consulting Group, in a recent report.
That may be part of what we’re seeing today. The Wall Street Journal (paywall) and Bloomberg report that Credit Suisse is considering selling off additional stakes in an electronic, government bond trading subsidiary. The Journal reports that Credit Suisse is considering whether to spin off the subsidiary—a joint venture with high-frequency trading firm Tower Research Capital called Wake USA LLC—into an independent company. The Journal notes:
The move shows how banks are getting more creative as they deal with numerous challenges facing fixed-income trading. Tough new rules on risk and capital are making sophisticated bond trades more expensive for banks to carry out. At the same time, lower market volatility is weighing on revenue. More of the trading of routine fixed-income securities such as Treasurys is moving to electronic venues, damping revenue even more.