Citadel Securities’ first-half net trading revenue slid 35% from last year’s volatility-fueled surge as the trading firm founded by Ken Griffin seeks to compete with the big banks.
(Bloomberg) — Citadel Securities’ first-half net trading revenue slid 35% from last year’s volatility-fueled surge as the trading firm founded by Ken Griffin seeks to compete with the big banks.
The market maker generated $2.73 billion in revenue in the first six months of this year after a record $4.2 billion haul in the first half of 2022, according to people with knowledge of the matter. The figure has exceeded $1 billion for 14 straight quarters, the people said, asking not to be identified disclosing private information.
Interest-rate hikes, recession fears and Russia’s invasion of Ukraine generated trading windfalls last year, but that’s subsided as volatility eased. The biggest US banks pulled in $57.3 billion in trading revenue during the first half, down 8.3% from a year earlier. JPMorgan Chase & Co. took in the most, at $15.4 billion.
Run by Chief Executive Officer Peng Zhao, Citadel Securities matches buyers and sellers in roughly one out of every five US stock trades, and generated about $7.5 billion in revenue last year, using algorithms to capture and profit from tiny differences in prices. It serves asset managers, banks, broker-dealers, hedge funds, government agencies and public pension programs.
A representative for Citadel Securities, which has offices in Miami, New York and Chicago, declined to comment on its recent performance.
The new figures were disclosed as part of an ongoing loan refinancing the company is marketing to debt investors.
The firm brought in about $1.1 billion of earnings before interest, taxes, depreciation and amortization for the first half of this year, a 58% drop from a year earlier, the people said. Total assets stood at $98.5 billion as of the second quarter, up from $95 billion.
Citadel Securities also took a $500 million dividend in the second quarter, which was funded from its cash flow, the people said. It generated $726 million of cash in the first half, they said.
The firm came into prominence in the era of meme stocks, and is responsible for more than a third of all US retail stock trades in the wake of online apps such as Robinhood Markets Inc. It’s ramping up its presence across fixed income beyond interest-rate swaps and Treasuries to serve institutional investors in corporate debt trading.
Read More: Citadel Securities Is Muscling Its Way Into Credit Market-Making
The firm originally launched a repricing on an existing $600 million leveraged loan earlier this month that would have locked in a lower coupon, cutting its borrowing costs.
But it relaunched the deal as a new $3.5 billion loan to rework its existing debts, a sign of strong demand from investors amid an upswing in the leveraged loan market. Citadel Securities is rated the lowest rung of investment grade, but its debt is in the form of leveraged loans that are typically made to high-yield rated companies.
This year’s equity volatility and bid-ask spreads — the difference between the buyer’s and seller’s prices — have declined, Moody’s Investors Service said in a ratings note earlier this month. Still, the ratings company said it expects Citadel Securities’ profitability to remain “robust due to its healthy market share across various asset classes and regions.”
The firm generated $1.3 billion of net trading revenue during the second quarter, down from about $1.9 billion in the same period a year earlier, the people said. The company’s earnings before interest, taxes, depreciation and amortization were around $539 million, down from $1.1 billion in the second quarter of 2022.
Moody’s affirmed its Baa3 rating of Citadel Securities, which it said reflects “strong capital base and profitability, diverse funding sources and healthy liquidity.”
Rival market-maker Virtu Financial Inc. is set to release its results later this week.
–With assistance from Jenny Surane and Jeannine Amodeo.
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