The 10 biggest investment banks' revenue from fixed income, currencies and commodities, known as FICC, fell 7 percent last year, a consultancy said on Thursday, citing lower client activity and a challenging economic backdrop. Revenues were down to half their 2009 level, industry analytics firm Coalition said, also reflecting the impact of banks changing their business to meet regulatory and capital demands.
2009 was a particularly strong year for banks' FICC divisions, as post-financial crisis volatility and investor demand for safe havens resulted in a surge in revenues. Coalition said that last year investment banks also cut staff as a result of pressure from regulators and shareholders, especially in the first six months of the year. In FICC, staffing levels fell 9 percent, a bigger reduction than the 1 percent in both equities and investment banking divisions.
Weakness in FICC contributed to a continued decline in operating margins, but banks have found it difficult to cut costs because of increased regulatory reporting requirements and staff retention costs, Coalition said. Investment banking was the strongest performer across banks' businesses, with a 6 percent rise in revenues on the back of mergers and acquisitions and equity capital market activity.
"Historically low interest rates and strong stock markets encouraged cash-rich corporations to execute acquisition opportunities in 2014, especially during the first half," Coalition said. "Financials, energy and healthcare were the top contributing sectors (in M&A). Performance was strong across all regions except Japan, with Asia ex-Japan outperforming."
The fall in FICC revenues masked a strong showing from the banks' commodities businesses, where revenues climbed 9 percent, reversing three years of declines, due to increased activity in energy markets as oil went into free fall. Increased volatility in financial markets typically opens up more commodity trading opportunities. Brent oil prices tumbled nearly 50 percent last year due to a global glut of crude oil and as the Organisation of the Petroleum Exporting Countries failed to cut output. Coalition tracks the following banks: Bank of America Merrill Lynch, Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and UBS.