LONDON (Reuters) - The world's top banks are expected to rake in billions more from bond trading in the first quarter, with U.S. banks putting in another solid performance and European banks taking even greater strides on the road to recovery, Barclays said on Wednesday.
The increase is expected to come from higher trading activity in U.S. credit and global rates markets as the Federal Reserve prepares to move away from most other central banks in the industrialised world and raise U.S. interest rates.
Revenue from fixed income, currency and commodities (FICC) trading at the top five U.S. banks will rise 16 percent, while European banks can expect growth four times faster than that from a notably weak January-March period last year, Barclays analysts said.
"Our recent meetings with New York-based investment bank executives confirmed the upbeat outlook for franchise health. More importantly, the message from European firms is a return to franchise health that stretches beyond a single strong quarter," Barclays banking analysts Kiri Vijayarajah and Jason Goldberg wrote in a note.
Bond trading revenue at most banks has been grinding lower for about seven years as new regulation on proprietary trading, derivatives and capital have restricted what banks can do in bond markets, making the business less lucrative.
From 2010 to 2015, bond trading revenue fell 36 percent across the industry, data from industry analytics firm Coalition shows.
According to Barclays, revenue from FICC trading at the top five U.S. banks in the first quarter is expected to rise 16 percent to $13.33 billion (11 billion pounds) from $11.51 billion (9.45 billion pounds) in the same period last year.
That will drive a 10 percent increase in total investment banking revenue to $26.87 billion from $24.52 billion. The overall increase will be diluted by a 2 percent rise in equity trading revenue and 7 percent rise in merger and acquisition and underwriting revenue, they said.
Growth in some European banks' FICC operations could be even greater, led by Credit Suisse (CSGN.S), which had a particularly weak first quarter last year. The Swiss bank could see FICC revenue rise by as much as 64 percent to over 1 billion Swiss francs CHF=, Vijayarajah said.
Earlier this week, analysts at JP Morgan said FICC revenues in the first quarter across eight of the top U.S. and European banks - excluding JP Morgan itself, the industry leader - will rise by 34 percent to $11.82 billion from $8.84 billion.
Credit Suisse's FICC revenues will more than double to $1.23 billion from $516 million, and Morgan Stanley (MS.N) will see revenues almost double to $1.6 billion from $873 million, JP Morgan forecast.
Reporting by Jamie McGeever and Anjuli Davies; Editing by Ken Ferris