Europe's leading investment banks took a trading revenue battering in the third quarter that shows no signs of reversing before the end of the year and gives a glimpse into the upheaval facing the industry as a whole. The combination of a regulatory drive to make markets less risky, a reduction in banks trading for their own account and the end of a 30-year bull market in fixed income is forcing all banks to rethink their operations and, in most cases, shrink.
Fixed income and currency desks took the biggest Q3 hits - to leave equities with a larger slice of the trading pie - as concern over a scaling back of US stimulus crimped volumes, scuppering a tentative rebound seen at the start of the year.
Deutsche Bank, UBS and Credit Suisse reported a collective drop in trading income of around $2.5 billion after lower client activity in a "subdued" and "difficult" trading environment.
BNP Paribas and Barclays also reported double-digit percentage drops in revenues from their fixed income businesses - a weaker trend begun by US banks such as Goldman Sachs and J. P Morgan.
While revenues normally take a seasonal dip in the third quarter, most of the banks also saw a drop year-on-year, as the slide was exacerbated by economic and political uncertainty.
"We expect Q4 trading to be more of the same. It's seasonally the weakest quarter for FICC (fixed income, currencies and commodities) as sales and trading desks typically take a lot of risk off from mid-November in the context of lower liquidity," said Kinner Lakhani, European banking analyst at Citi.
Beyond seasonal trends, regulation and de-risking of bank balance sheets are set to further pressure FICC in the long run.
Stock trading revenues at the top 11 global investment banks are set to rise $11 billion into 2015 while FICC revenues will fall $2 billion, leaving the market as a whole much smaller than at its pre-crisis peak, according to UBS research.
FICC units are particularly vulnerable to the sweep of regulatory change to make markets more transparent and banks take less risk, in a bid to prevent another financial crisis.
Part of that involves forcing more deals on to exchanges, pressuring margins, particularly in FICC units, which rely on bespoke deals, and this has jump-started a retreat by banks from areas where they do not have a dominant position.
UBS data showed the top investment banks saw a 20 percent slide in FICC and 47 percent in equities between 2006/7 and 2012, contributing to a revenue pool of around $300 billion, of which FICC accounts for more than half.
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