Big banks take multi-billion dollar hit after 9 percent FICC revenue drop in 2015

BY Fraser Tennant

Big banks took a multi-billion dollar hit last year with a new snapshot of earnings and volumes revealing that revenue from fixed income, currencies and commodities (FICC) trading was down 9 percent in 2015 for the world’s 12 largest investment banks.

In its ‘IB Index – FY15’ report published this week, which analyses the public disclosures of the aforementioned banks, Coalition confirms that FICC trading revenue was $69.9bn for FY2015 compared to $76.7bn in FY2014 (the figure was $109.1bn in 2010).

Much of this decline, according to the report, can be attributed to the impact of regulatory changes (Basel III) which require banks to hold higher levels of capital and liquidity. In addition, trends such as high litigation costs and volatile markets have led to job losses and business line exits which have substantially impacted the banks’ FICC activities (usually one of the most profitable areas).

The Coalition analysis tracks the public disclosures of Bank of America Merrill Lynch; Barclays; BNP Paribas; Citigroup; Credit Suisse; Deutsche Bank; Goldman Sachs; HSBC; JPMorgan; Morgan Stanley; Societe Generale; and UBS.

Additional key findings in the report include: (i) commodities revenues dropped by 18 percent, due mainly to slow business in metals and investor products; (ii) investment banking divisions (IBD) saw a 5 percent fall in revenue to $40.5bn due to a surge in M&A activity being offset by declines in equity and debt capital markets activity; (iii) return on equity (RoE) declined slightly to 9.2 percent from 9.3 percent, due to both increased capital requirements and weak performance; and (iv) poor trading results and low client activity in the second half of 2015 contributed to an overall 3 percent decline (to $160.2bn) compared to a year ago in investment banking revenue across the world's major banks.

However, in contrast to the above litany of gloom, Coalition reported that the banks' equity businesses - including cash equities, equity derivatives, prime services and futures and options – did well in 2015, with revenue rising 10 percent to $49.8bn.

“Poor trading results and low client activity in 2H led to a marginal decline in IB revenues for FY15”, said Coalition in summation. “Equities outperformed at the start of the year, but Fixed Income struggled throughout, especially in Credit, Securitisation and Commodity related activities. IBD declined as improvements in M&A were more than offset by declines in ECM and DCM volumes.”

Report: Coalition IB Index – FY15 February 2016

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