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Banking

Banks abandon proprietary trading

As banks cut back, leading prop trading boutiques grow; Can banking and prop trading co-exist?

Shubh Saumya, Boston Consulting Group

"It’s not that the business model of banking with prop trading is completely broken, it’s that those banks without the risk capabilities or appetite are moving away from it"

Shubh Saumya, Boston Consulting Group

Financial institutions’ headlong retreat from proprietary trading continues. In March last year, Swedish bank Handelsbanken shut down its fixed-income and FX prop trading desks in New York. Last December, JPMorgan Chase consolidated its standalone prop desk into its other proprietary trading operations. Deutsche Bank has cut the number of its proprietary traders. Credit Suisse has reportedly culled its proprietary trading operations. And now Morgan Stanley is rumoured to be looking to spin off its proprietary trading operation, Process Driven Trading. Is this a short-lived reaction to trading losses and regulatory scrutiny or a permanent change in the business model? Proprietary trading desks made a lot of money for banks before 2007. However, says Shubh Saumya, partner in the financial institutions practice of Boston Consulting Group: "As banks have delevered, they have less to play with on the asset side, and one of the first things they reduce is proprietary trading."

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