Investors calling their investment banks to place an equities’ order
should not be surprised if the call is not returned. After
Spitzer, the equities’ brokerage business is looking patently
lacklustre. The great research engines that the banks built just cannot
be kept firing on meagre broking commissions. Without the allure
of corporate finance, they are looking distinctly expensive
propositions.
The answer, it seems, is to use all that wonderful research for the
banks to place their own bets. Proprietary trading, which goes in and
out of favour depending on whether it is racking up profits or losses,
is back in vogue in a big way.
Proprietary trading has another appeal for banks. For a while now their
best traders have been walking off to join hedge funds, where they make
a ton of money for themselves. By keeping them in-house, some of those
profits should come through to the bottom line … as well as the
occasional spectacular loss, of course. But the bad publicity and
interference cannot be worse than what has been heaped upon them by
Spitzer.
Brian Caplen