Weak fixed income, currencies and commodities ('FICC') revenues
hit the world's top 10 investment banking giants with their top
line witnessing a 5% decline in the first half of 2014, according
to a report released on Wednesday by Coalition, a U.K. analytics
firm. Total revenue came in at $82.3 billion compared with $86.8
billion in the year-ago comparable period.
The Coalition Index relates to the performance of the 10 biggest
global investment banks - The Goldman Sachs Group, Inc. (
), JPMorgan Chase & Co. (
), Morgan Stanley (
), Deutsche Bank AG (
), Citigroup Inc. (
), Bank of America Corporation (
), Barclays PLC (
), Credit Suisse Group AG (
), UBS AG (
) and BNP Paribas SA (
The Figures So Far
FICC, which has become the major revenue source for banks amid the
low interest-rate environment, fell 13% year over year to $39.6
billion in the first half of 2014. Further, forex revenues
exhibited a declined of 35% year over year, marking the biggest
year-over-year decline for a half year period since 2008.
Revenues from equity-trading business of the banks decreased 4%
year over year to $21.6 billion, hurt by decline in derivatives.
Factors That Affected Investment Banks
The dismal performance of FICC was a result of several challenges
that the banks are facing - including stricter regulations for
maintaining higher capital against risky assets. Also, the absence
of volatility in financial markets contributed to the shrinking
Higher costs have also added to the woes. Coalition mentioned that
compliance costs in FICC divisions have increased while expenses in
the technology platform escalating with new reporting standards and
gradual dominance of automated trading in the market.
In order to address the margin compression and declining revenues,
expense management has become a priority for the banks. One area of
cost cutting has been through lay-offs and pay cuts. As per
Coalition data, these banks reduced front office jobs by 4% while
the FICC division witnessed 9% job cuts.
According to the analytics firm, "only a handful of market leaders
remain committed to a 'complete' service', while the other banks
have refocused their strategies around client, product and regional
The Brighter Side
Though revenues of these banking giants dipped, higher revenues
from commodity trading and strong mergers and acquisitions
(M&A) activity have supported the overall performance of the
Trading in U.S. power and gas benefited from the prolonged cold
winter in the country leading to a rise in raw-material revenues.
Also, the market witnessed renewed interests among investors
regarding commodities. So this section came out as the only within
FICC to show an improvement. Commodities revenues climbed up 21%
year over year.
With the gradual recovery of the global markets, a rebound in
M&A activity and a surge in IPOs have resulted in a 21%
year-over-year increase in revenues in the investment banking
divisions of the banks in first-half 2014. Notably, M&A volumes
hit seven-year high at June-end and capital market activities
What's Expected Down the Road?
In its report, Coalition provided downbeat estimates for 2014.
Annual revenues for the major investment banks are expected to
decline 2% year over year to $150.7 billion.
FICC revenues are expected to witness a 9% decline to $67.4 billion
in 2014 from $73.9 billion in 2013. Further, revenues from equities
trading is estimated to come in at $40.3 billion, reflecting a 2%
decline. However, investment banking, which includes revenue
advisory and underwriting businesses, is expected to exhibit a rise
of 13% in 2014.
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