Bank of America's traders had a tough quarter but it has no regrets on all that hiring
It was an unfortunate end to the year. Bank of America's fixed income traders didn't do nearly as badly as Citi's in the fourth quarter, but they didn't do well either. Fixed income currencies and commodities (FICC) revenues at the US bank fell 6% year-on-year in Q4, brought down by "weaker trading in rates and credit." Until the final 12 weeks, all had been going well: in the first nine months of 2023, markets revenues at BofA were up 18%. 😢
Bank of America doesn't seem overly worried about events at the end of the year. This might be because, for 2023 as a whole, its sales and trading revenues were at their highest level ever. It might also be because for 2023 as a whole, BofA had no loss-making trading days whatsoever.
As we reported previously, Bank of America has done some heavy hiring in its fixed income business, even while having a professed hiring freeze across the bank as a whole. It doubled the size of the currency and commodities salesforce working with corporate clients in the two years to mid-2023 and hired 50% more staff across EMEA sales and trading.
There appeared to be no second thoughts about all that hiring today. Bank of America CFO Alastair Borthwick said that BofA's markets business has started strongly in 2024 and that although it's too early to say what the quarter will turn out like, it's fair to use 2023's record revenues as a baseline for this year.
Shortly before Christmas, BofA CEO Brian Moynihan said the bank would continue to invest in its markets division as it seeks to grow market share. “We increased the size of the business three or four years ago, and that has borne fruit,” Moynihan said. “As long as they can keep deploying it, we’ll keep pushing capital.”
There wasn't much sign of pushing capital to the markets business in the fourth quarter. Allocated capital increased from $42.5bn to $45.5bn between Q2 2022 and Q1 2023, and was then held at $45.5bn until the end of the year. Average value at risk across the markets business was down 32% year-on-year in Q4, suggesting that BofA remains cautious even if it is adding headcount.
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