Results of a recently concluded survey from industry analytics firm Coalition are in, and the numbers reveal a decline in revenues for investment banks. What’s especially noteworthy, is that dips in the more profitable arms of the business have contributed to the decline.
A combination of slowing activity by clients and poor trading results resulted in a 3 percent drop in I bank revenues in the global majors. Revenues in commodities dipped 18 percent owing to the normalization in the aftermath of the surge in power and gas in the previous year, and sluggish business in the metals and investor products.
9 percent drop in investment bank trading revenues
Analytics firm Coalition has shared results of its survey of the industry and there are some sobering numbers. According to the survey, investment bank trading revenue at 12 of the world’s largest investment banks went down by 9 percent in 2015. This includes revenue from fixed income as well as commodities and currencies. Known also as FICC, this revenue was likely to have been impacted by widespread retrenchment as well regulatory changes. FICC has traditionally been a highly profitable business for investment banks.
According to Coalition’s survey, the FICC trading revenue at these 12 banks dropped to just USD 69.9 billion, a huge decline from the lofty USD 109.1 billion that they had been doing only five years earlier. Data in the study by Coalition factors in public disclosures, coupled with independent research and analysis. The banks included in the purview of the survey include the biggest names in the business - Bank of America Merrill Lynch, UBS, Citigroup, HSBC, Deutsche Bank, Goldman Sachs, Barclays, Morgan Stanley, JPMorgan, BNP Paribas, Societe Generale and Credit Suisse.
What’s pulling FICC down?
FICC has been slowed by some of the reform measures that were put in place in the aftermath of the crash of 2008. Among other things, there is a need to hold higher quantities of capital and liquidity. Under pressure, many have been forced to exit some lines of business and lay off large numbers of employees in others. A 2 percent drop in staff numbers was recorded at the top banks compared to the previous year, with a large number of cuts coming from FICC which experienced a 4 percent fall in headcount.
The volatility in the market as well as the costs of litigation have also brought on the necessity for restructuring. Some of these very requirements are proving to be a challenge to the growth of these banking mammoths.