Trading Israeli bonds and currency helps Wall Street banks

The world’s leading investment banks are poised to report their highest trading revenue in five years from Israel's bonds and currency, driven by the volatility created by the ongoing 14-month war in the Middle East, according to data reviewed by Reuters.

These banks are expected to generate $475 million in revenue from fixed-income, currencies, and commodities (FICC) trading related to Israel in 2024, marking a more than 10% increase from 2023. The surge is largely attributed to heightened volatility, particularly in the shekel, Israel's national currency, as reported by Vali Analytics Ltd.

This revenue growth highlights how global banks have profited from fluctuations in Israeli assets amid the ongoing conflicts in Gaza and Lebanon. These wars have fueled inflation in Israel, slowed economic growth, and raised borrowing costs.

JPMorgan Chase & Co. (NYSE:JPM), the largest U.S. bank, is anticipated to be the biggest beneficiary among 10 major global banks surveyed, generating approximately $70 million from these trades this year, according to a source familiar with the matter.

While this sum is a small portion of global trading income, the double-digit increase underscores how trading in Israeli assets has become a standout opportunity in an otherwise lackluster trading environment.

Vali Analytics forecasts no overall growth in FICC revenue for these 10 global banks in 2024.

Goldman Sachs and Citigroup (NYSE:C) hold the second-largest share of the Israeli FICC market after JPMorgan, with European banks taking a smaller portion, the source added. Goldman, Citi, and JPMorgan have declined to comment.

In response to pressure from activists and governments, some of Europe's largest financial institutions have reduced their exposure to Israeli companies or firms with ties to the country, as reported by Reuters earlier this month. However, Reuters could not determine the performance of European banks in the trading rankings.

JPMorgan, which opened an office in Tel Aviv in 2000, has made significant investments in Israel and currently employs around 200 people there.

Bigger Market Swings

JPMorgan's global revenue from fixed-income trading fell by 2% to $14.7 billion in the nine months leading up to September, compared to the same period last year, as indicated by the bank's filing.

Increased volatility typically benefits traders who wager on the future direction of assets. Earlier this month, the shekel's one-month implied volatility reached its highest level since October 2023. It had been trading consistently above the volatility of the euro since early 2023, with significant peaks and troughs providing ample opportunities for traders.

"Israeli currency volatility has risen due to a combination of more polarized politics, concerns over institutional stability stemming from the controversial judicial reforms, and, of course, the ongoing war on multiple fronts," said Hasnain Malik, head of emerging and frontier markets equity strategy at Tellimer.

The Israeli government passed laws in 2023 that limited the powers of the Supreme Court in favor of Prime Minister Benjamin Netanyahu's executive branch, a move that unsettled investors.

The continued regional conflict has amplified market fluctuations. For example, the shekel has gained nearly 3% against the dollar this month, partly driven by optimism for a potential ceasefire between Israel and Iran-backed Hezbollah in Lebanon.

"Such volatility benefits banks, as it leads to wider spreads, but it can negatively affect businesses that rely on imported inputs or export finished goods," noted Malik from Tellimer.

 

 

 

 

 

 

 

Paraphrasing text from "Reuters" all rights reserved by the original author.