LONDON (Reuters) - Bond trading revenue at the world’s top banks rebounded sharply in the first three months of the year as strong activity in credit and interest rate products eclipsed the lowest currency trading volume in over a decade, a survey showed on Wednesday.
The period saw Donald Trump sworn in as U.S. president and an initial surge of investor optimism that his promises to cut taxes, boost spending and deregulate the banking sector would lift growth and boost asset markets.
With the Federal Reserve raising U.S. interest rates too, trading revenue at the top U.S. and European banks from fixed income, currency and commodities (FICC) totalled $21.4 billion, according to industry analytics firm Coalition.
That was up 19 percent from $17.9 billion in the same period last year, a particularly weak quarter, which helped make the January-March period this year look relatively strong.
“The first quarter of last year was the worst quarter since 2008. If you compare against Q1 2014 and 2015, we’re still significantly below these levels,” said George Kuznetsov, head of research at Coalition.
The increase in FICC revenue was driven by a 15 percent rise in G10 rates trading to $7.5 billion, a 65 percent rise in credit to $4.7 billion and an 82 percent jump in securitisation activity to $3.4 billion.
But G10 foreign exchange trading revenue slumped by a quarter to $1.8 billion, the lowest since 2006, depressed by the historic low level of market volatility which traditionally crimps activity in global macro trading, Kuznetzov said.
The FICC rebound follows years of post-crisis decline, as banks have had to adjust to reforms compelling them to hold more capital and liquidity and reduce the amount of bonds they can hold on their books. This has resulted in a continuous reduction of staff, and the exit from some business lines altogether.
Front office headcount fell 3 percent to 52,900, with staffing levels still affected by the cuts made by some of the surveyed banks in the first half of last year.
“Despite these relatively healthy FICC revenues we haven’t seen any significant increase in headcount. Given that Q2 is expected to be relatively poor, we don’t expect that to happen any time soon either,” Kuznetsov said.
Equities trading revenue fell 8 percent to $10.8 billion, led by an 18 percent slide in cash trading to $2.3 billion. That was particularly “alarming” given the strong performance of stock markets in general and equity capital market (ECM) activity, Kuznetsov said.
The 12 banks in the survey were: Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L), BNP Paribas (BNPP.PA), Citi (C.N), Credit Suisse (CSGN.S), Deutsche Bank (DBKGn.DE), Goldman Sachs (GS.N), HSBC (HSBA.L), JP Morgan (JPM.N), Morgan Stanley (MS.N), Societe Generale (SOGN.PA) and UBS (UBSG.S).
Reporting by Jamie McGeever; Editing by Hugh Lawson and Tom Heneghan