Citadel's net trading revenue drops 35% as market looms

Citadel Securities, the trading firm founded by Ken Griffin, saw a sharp 35% year-on-year drop in net trading revenue in the first half of the year, according to people familiar with the matter.

Citadel Securities earned $2.73 billion in revenue in the first half of the year after a record of $4.2 billion in the first half of 2022, as the Federal Reserve kicked off a cycle of interest rate hikes and dramatic market volatility brought on by geopolitical tensions.

Net trading revenue at several of Wall Street's biggest banks fell 8.3% year-on-year to $57.3 billion in the first half of this year, with JPMorgan Chase making the most trading revenue at $15.4 billion.

The company's EBITDA for the first half of this year was about $1.1 billion, down 58% from a year earlier, people familiar with the matter said. As of the second quarter of this year, the company's total assets under management increased to $98.5 billion from $95 billion. Citadel Securities also earned $500 million in dividend income from cash flow in the second quarter, people familiar with the matter said.

Citadel securities are rated the lowest investment grade, but their debt is in the form of leveraged loans that are typically geared toward high-yield-rated companies. Stock volatility and bid-ask spreads have declined this year, which will adversely affect Citadel's earnings, Moody's Investors Service said in a rating report earlier this month. Nonetheless, the rating firm said it expects Citadel Securities' profitability to remain strong due to the company's healthy market share in all asset classes.

It's also worth noting that Citadel Securities has been investing more in AI technology since the second quarter, and in June, Citadel Securities told startup founders and investors that it was seeking to acquire stakes in AI startups that use large-scale language models.

Citadel Securities is looking to invest in AI startups with Sequoia Capital, one of the people familiar with the matter said. Sequoia Capital and Citadel Securities have worked together before, with Sequoia taking a stake in Citadel Securities in 2021, and both invested in cryptocurrency exchange EDX Markets last year. Sequoia Capital has also invested in AI startups such as OpenAI and Harvey.