How much do you think big banks made from stand-alone prop trading since June 2006 ? Billions ? Tens of billions ? Nope, six of the largest banks in the US actually lost $221m between them from June 2006 to the end of 2010.
Sure, prop trading is a zero sum game, so there’s always a sucker. But we’d didn’t think that the suckers would end up being the big players themselves, even allowing for the financial crisis.
Bloomberg reports that, according to the US Government Accountability Office, the standalone prop-trading groups at Bank of America, JPMorgan, Citi, Goldman, Morgan Stanley and Wells Fargo made $15.6bn in the period (in 13 of the 18 quarters), but dropped $15.8bn in the other five (Q3 and Q4 2007, Q1, Q3 and Q4 in 2008).
So many traders, such large bonuses, no ‘real’ profits. Hmmmmmm.