Trading platforms profit from pandemic chaos

Bear markets earlier this year have seen a recovery - but for how long? Keystone / Bernd Kammerer

While Covid-19 has been wreaking havoc on the economy, many banks and trading platforms have recorded bumper results. Profits were boosted by elevated trading activity, but future prospects are mixed depending on the type of financial player.

The months of March and April witnessed chaos in the financial markets, as investors of all shades dumped volatile assets to get their hands on cash. Although the situation has since eased, many analysts expect further turbulence ahead.

Volatility creates winners and losers among traders, but for trading platforms and investment advisers, it can be a win-win situation. This is in marked contrast to the 2008 financial crisis that was caused by banks and led to many being bailed out with state funds.

Announcing its half-year results, the Swiss stock exchange spoke of “record-high volatility” during a bout of “unprecedented market turmoil”. The exchange witnessed its highest-ever trading activity during one week in March.

The pandemic had one negative impact on half-year results for exchange operators SIX Group, which suffered from a drop in credit card and ATM transaction fees, as shops closed and people stayed at home and avoided cash. But this was more than made up for by a 60% spike in trading profits.

Digital trading platform Swissquote has enjoyed an even greater bumper harvest so far this year. Revenues had shot up nearly 40% by the end of June and net profits rose by an even more impressive 128.5%, to more than CHF50 million ($55 million). 

Swissquote expects revenues to weigh in at CHF300 million by the end of this year, up by nearly CHF70 million from 2019.

Another online trading specialist, Saxo Bank Switzerland, is due to post its results in the coming days. It has seen a tripling of new clients in the first half of this year compared to the same period in 2019. Trading volumes across all asset classes were also up by 70%.

“Besides the high market volatility, this was also due to the fact that people were in home office and had more time to take care of their finances, for which they preferred to use online digital trading platforms,” the bank stated.

Digital players that reach a wide audience clearly believe that their prospects are bright.

A new entrant, Flowbank, will step into this arena in the autumn, having won a Swiss banking license in July. The digital financial platform hopes to sign 5,000 clients a month onto its trading app before expanding operations outside of Switzerland.

Many traditional banks have also reported boosted revenues on the back of advising clients on how to navigate the pandemic, and by executing trades on their behalf. But in many are nervous about their future prospects.

Credit Suisse reported decade-high profits for the first half of 2020 that increased by nearly 50% on the same period last year. Surging trading revenues were responsible in good part for these results. UBS, Lombard Odier and Julius Bär also saw profits inflate during the same period.

But Covid-19 has also brought problems to the financial sector. The assets of wealthy clients managed by private banks were prone to shrinking in value, as investments lost value in the turmoil.

The biggest cloud hanging over many banks is how many loans will turn sour as the pandemic and accompanying lockdowns ravage economies. Banks have been forced to put aside more cash to pay for an anticipated rise in loan defaults.

Predicting the pandemic’s future effects on both the general economy and financial markets is proving difficult. “The range of possible outcomes remains very wide,” says UBS.  

Credit Suisse expects the pandemic to “keep adversely affecting our business performance, including a potentially significant impact on credit losses.”