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Citadel Securities Doubled Profit as Dominance Grew in 2020

Tom Maloney and Sally Bakewell
·3 mins read

(Bloomberg) -- In the last week of March, with the Covid-19 pandemic upending lives and markets, Ken Griffin started building a temporary trading floor in Florida.

Citadel Securities mostly abandoned its Chicago and New York offices and set up shop at the Four Seasons Palm Beach, moving dozens of employees and their families. Others went to an emergency facility in Connecticut, moves designed to keep his market-making firm operating seamlessly as the rest of the financial world dealt with wild swings and extraordinary trading volumes from makeshift home offices.

The efforts paid off, with Citadel Securities handling more than a quarter of all U.S. equity volume in the first half of the year. The trading operation, which is separate from Griffin’s hedge fund business, generated $3.84 billion of revenue in just six months, more than the $3.26 billion for all of 2019, according to a presentation to investors. Net income was $2.36 billion in the first six months of 2020, compared with $982 million for the same period a year earlier.

A spokesman declined to comment on the numbers for closely held Citadel, which were disclosed to investors this month as the Chicago-based company sought a $300 million loan.

Trading desks across Wall Street have benefited from a roller-coaster first half. After the pandemic drove stocks into the fastest bear market ever in March, the S&P 500 mounted one of the biggest rallies in nine decades, boosted by stimulus measures and optimism over a swift economic rebound.

The results underscore the remarkable rise of Citadel Securities and its relative insulation from the pandemic. While investment banks have grappled with loan write-offs, that’s not an issue for a pure trading operation like Griffin’s, which grew out of his hedge fund business and started muscling banks out of markets they once dominated.

Citadel Securities, led by Chief Executive Officer Peng Zhao, also increased its market share. In the U.S. options market, it climbed to 32% from 27%. In the three months through August, 28% of U.S. equity volume went through Citadel, up from 22% in 2019.

And in the retail market, which has surged this year thanks to commission-free trading and apps such as Robinhood, Citadel dominates, with 41% of the market.

Citadel’s growth is helping turbo-charge one of the industry’s biggest fortunes. Griffin owns 85% of the securities business and has a $15.3 billion fortune, according to estimates by the Bloomberg Billionaires Index.

Read more: Ken Griffin’s Shutdown Playbook Kept Him on Top of Markets

Griffin, 51, is also having a pretty good year with his hedge fund business. Its main hedge fund, Wellington, gained 18.3% this year through August.

While it’s uncertain whether Citadel Securities can maintain this level of trading volume once the pandemic subsides, Moody’s Investors Service this week boosted its credit outlook on the firm to positive from stable, citing “its ability to generate strong revenue and profitability throughout business cycles.” The size of the loan, meanwhile, was increased to $500 million.

(Updates with loan increase in last paragraph.)

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