ST. LOUIS (TheStreet) -- "Principal transactions" are a common line on investment banks' income statements.
Revenue from that category is the result of banks trading from their own account for profit. It's usually in this business where obscene amounts of money can be made, or lost, on Wall Street. Take Goldman Sachs (GS), for example. Some smaller companies around the country are doing the same thing. Stifel Financial (SF), based 900 miles from lower Manhattan in St. Louis, is a perfect example of that. Stifel's revenue from principal transactions have soared 70% this year as the small shop rides the stock markets to heady profits.
Big banks like Goldman Sachs and JPMorgan (JPM) have been resurrected this year, thanks to improvements in principal transactions. Goldman generated more than $8.8 billion in revenue from those activities in the third quarter. While good bets can bring in loads of cash for financial companies, bad ones can leave them teetering on the brink of insolvency if the securities markets moves against their positions. Luckily for Stifel, it avoided most of the toxic assets that destroyed profits at many bigger institutions, including Citigroup (C) and AIG (AIG).
With the upheaval in the markets last year, many seasoned Wall Street pros found themselves out of work and desperate for another shot in trading. The big banks' loss was Stifel's gain. It bulked up with castoffs and has found a new profit center in proprietary trading. Principal transactions overtook commissions as the top-earning unit in the third quarter on its way to earning $123.3 million in only three months.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV