Bank of America Trading Desks Gain Ground With More Capital, Headcount

Fixed-income traders in particular have nabbed market share, helping narrow gap with rival JPMorgan

(Bloomberg) — Bank of America Corp.’s trading floors appeared to be faltering in their push to grab market share early last year, when the head of the business took the mic at a town hall meeting to discuss their progress.

Jim DeMare cut to the chase: Anyone lacking the ambition to do better should consider working elsewhere. A year later, his division posted a 10% jump in quarterly revenue — the only increase among Wall Street’s five largest trading houses.

Bank of America, long regarded as the sleeping giant of trading, has been quietly making headway in a bid to narrow the gap with its main competitors. Since DeMare took over the bank’s global markets division in a flurry of leadership changes three years ago, he and his colleagues have persuaded the company’s bosses to give them more capital, recruited rainmakers, boosted headcount and launched a variety of other initiatives.

In that time, the unit has gained almost six percentage points of market share on its biggest rival — fellow balance-sheet titan JPMorgan Chase & Co. — which generates more revenue from trading than any other US bank. Much of the improvement is coming from the fixed-income unit, where Bank of America has hired dozens of people to bolster foreign-exchange and emerging-markets macro desks. Executives at a number of rivals say the firm suddenly seems more in the game.

“You have to keep reinforcing the message to clients: We want to be top tier with you,” DeMare, 54, said in an interview. He acknowledged that his patience was wearing thin a year ago at the town hall, leading to his uncharacteristic outburst. “I wasn’t happy.”

In Wall Street’s endless jockeying to trade everything from stocks and bonds to lithium and lira, Bank of America is now the drama to watch. The performance of its markets division has emerged as a bright spot for the company, whose stock has lagged behind top competitors this year. Bank of America’s is down almost 15%. JPMorgan’s is up nearly 9%. 

Ever since Bank of America stumbled through the 2008 crisis into an era of multibillion-dollar liabilities and losses, it has been full of tension: The inheritor of Merrill Lynch’s famous thundering herd is especially wary of danger.

In an industry that sees a willingness to embrace risks as the prerequisite for more deals and profits, Chief Executive Officer Brian Moynihan has adopted the mantra of “responsible growth,” promising shareholders and regulators that the company can take a safety-first approach to getting bigger. For years, the self-restraint chafed ambitious traders, prompting some to leave.

Read more:  BofA’s CEO Has a Mantra He Repeats to Stay Out of Trouble

As the firm’s hard-charging head of global banking and markets, Tom Montag, prepared to move on a few years ago, the company installed a softer regime. That included DeMare, a longtime trader described by colleagues as subtle and reserved.

To figure out why customers weren’t sending it more business, the firm’s sales and trading teams asked investors to rank Bank of America’s importance as a partner. The company’s executives aim to be in the top three in every business line. In many cases, customers listed it fifth or sixth. The blunt responses fueled a conversation inside the bank.

“All businesses that could have been doing better — many of the macro-trading products, and the prime-brokerage unit — were constrained by not having enough capital,” DeMare said. His team went up the chain, successfully making a case to Moynihan for more. 

Meanwhile, the division was hiring. In 2020, it lured Goldman Sachs Group Inc. partner Carlos Fernandez-Aller to run foreign-exchange and make other key hires in regions where it wasn’t previously as active, including Latin America. By mid-2022, the firm’s foreign-exchange and emerging markets macro desks had added more than 30 people.

That included Goldman rates trader Pedro Ossa, who helped beef up the emerging markets business to cover the Andean region, which includes Chile, Colombia and Peru. In Europe, managers tapped Funda Celik from JPMorgan to oversee trading in Central Eastern Europe, the Middle East and Africa.

Investments in rates and currencies trading also helped the firm’s investment bankers, led by Matthew Koder, meet the needs of corporate clients looking for more ways to hedge coupons and currency risk.

And opportunities emerged in equities as some European trading houses stumbled, culminating with this year’s emergency sale of Credit Suisse Group AG to larger Swiss rival UBS Group AG. Bank of America’s equities division, led by Soofian Zuberi, has sought to capitalize, hiring senior talent including Morgan Stanley’s former head of European equity trading, Nick Laux. It also brought in Goldman’s Neil Kearns as head of US corporate buybacks and repurchases.

At the same time, Bank of America has been making a new push to hone some of its markets technology. Previously, it focused on developing electronic-trading platforms. But increasingly, it’s augmenting systems for more traditional “high-touch” trading by humans, trying to improve customers’ experience.

“We’ve had a more balanced business across the board,” DeMare said.

Hanging Back

One question is what might happen to Bank of America’s risk appetite. Even after years, some insiders still complain that the company’s conservatism costs it opportunities and leaves money on the table.

“They are not looking to go for the big swings, or outside pitches,” said Ken Usdin, an analyst at Jefferies Financial Group Inc.

When war broke out in Ukraine last year, Moynihan and Chief Risk Officer Geoffrey Greener urged the bank to hang back as some competitors pitched ways for opportunistic investors to place bets linked to Russia. That contributed to Bank of America’s temporarily loss of market share in last year’s second quarter.

Part of the company’s calculus is that if it can dodge the biggest blowups, it will generate steady returns and eventually pull ahead of firms that do themselves serious damage.

“They are less volatile, with a lower-risk appetite, more of a grind-it-out type approach,” said Jason Goldberg, an analyst at Barclays Plc. “Their performance tends to underperform when peers are doing really well, but outperform when they’re not doing so well.”

The firm hasn’t fully immunized itself from market-wide setbacks. Its unit underwriting leveraged loans for corporations had to sell some at a discount, cutting into profits. But in trading, the leveraged-loan desk has profitably navigated the price swings of recent years, even with market-wide volumes down, according to people familiar with the results.

Last month, DeMare traveled to London to accept Euromoney’s award for the world’s best markets bank this year, and colleagues spotted him in the office there, beaming.

He later addressed the larger workforce again. This time, attendees said, his tone was congratulatory.

(Updates shares in sixth paragraph.)

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