Q2 2015 U.S. Investment Banking Round-Up: FICC Trading

-12.13%
Downside
63.24
Market
55.57
Trefis
C: Citigroup logo
C
Citigroup

There was a notable decline in debt trading activity over the second quarter of the year, as Greece’s precipitous credit condition and weak economic indicators in China and some Eurozone nations made investors wary of the bond market. This resulted in a sharp reduction in FICC (fixed income, currencies & commodities) trading revenues for investment banks compared to Q1 2015 as well as Q2 2014. While the seasonal securities trading industry usually witnesses peak activity levels over the first quarter of the year, the exceptionally strong showing in Q1 exaggerated the quarter-on-quarter decline.

FICC trading is not as profitable as it was prior to the economic downturn of 2008, and a few banks have strategically chosen to reduce their presence in the capital-intensive business in response to thinner margins and more stringent capital requirements. However, it still remains a key source of income for most investment banks. In this article we detail the FICC revenues for the country’s five largest investment banks – Goldman Sachs (NYSE:GS), JPMorgan (NYSE:JPM), Morgan Stanley (NYSE:MS), Bank of America-Merrill Lynch (NYSE:BAC) and Citigroup (NYSE:C) – over recent quarters, and also detail the importance of these operations to their overall business models.

See the full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of AmericaCitigroup

Relevant Articles
  1. Rising Only Half the S&P’s Gain In 2023, Where Is Citigroup Stock Headed?
  2. What To Expect From Citigroup Stock In Q3?
  3. Citigroup Stock Is Trading Below Its Intrinsic Value
  4. Citigroup Stock Is Trading Below Its Intrinsic Value
  5. Citigroup Stock Has Growth Potential
  6. Is Citigroup Stock Fairly Priced?

The table below summarizes the revenues each of the five largest U.S. banks generated through their FICC trading units for each of the last ten quarters. These figures have been adjusted for gains/losses linked to revaluation of the banks’ own debt, as DVA is inherently an accounting-related charge and doesn’t influence operating revenues for any period.

(in $ mil) Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Citigroup 4,623 3,372 2,783 2,329 3,850 2,996 2,981 1,988 3,483 3,062
JPMorgan 4,752 4,078 3,439 3,199 3,899 3,673 3,743 2,533 4,065 2,931
Bank of America 3,001 2,259 2,033 2,080 2,950 2,370 2,247 1,456 2,745 2,146
Goldman Sachs 3,259 2,431 1,294 1,887 2,835 2,222 2,133 1,163 3,166 1,451
Morgan Stanley 1,515 1,153 835 694 1,654 1,011 997 133 1,903 1,267

Q2 2015 was a rare quarter in which JPMorgan was beaten to the top position by Citigroup. JPMorgan commands the strongest share of the global FICC trading business, with the diversified banking giant ranking #1 in 16 of the last 18 quarters. Citigroup has reached the top spot in the other two quarters, Q3 2012 and Q2 2015. Notably, Citigroup is the only bank here that has decided to focus primarily on FICC trading while cutting down on its equity trading operations. On the other hand, Morgan Stanley has shrunk its FICC trading desk considerably since the downturn – choosing to focus on equities instead. Morgan Stanley has made more than $2 billion in debt trading revenues just once in the last four years (Q1 2012).

The chart below details the total FICC trading revenues for these five banks in each quarter since Q1 2005, and makes it easy to identify trends in these revenues over the last decade.

FICC_15Q2

While the figures above allow for a simple comparison of quarterly revenues across the investment banking giants, this data doesn’t really lend itself to understanding the relative importance of the FICC trading desk for a particular bank’s business model. To facilitate a better comparison, we compiled the following table, which consolidates the figures for the last four years into a single set of average numbers.

(in $ mil) Total Revenues FICC Revenues FICC / Total Std. Dev. Std. Dev./ Mean
JPMorgan 23,869 3,631 15.2% 604 16.6%
Citigroup 19,245 3,147 16.4% 710 22.6%
Bank of America 21,651 2,329 10.8% 444 19.1%
Goldman Sachs 8,842 2,184 24.7% 712 32.6%
Morgan Stanley 8,628 1,116 12.9% 484 43.3%
TOTAL 82,235 12,407 15.1% 2,786 22.5%

This table includes the average quarterly revenues each bank reported over the ten-quarter period from Q1 2013 to Q2 2015 and has been sorted based on the average FICC revenues earned in a quarter. JPMorgan stands out in this regard with an average figure in excess of $3.6 billion. This is more than 15% of the bank’s total quarterly revenues – a sizable portion considering the diversified nature of the bank’s operations. Citigroup and Goldman Sachs are the only two other banks that rely more heavily on FICC trading revenues to drive their top lines.

Notably, JPMorgan has the lowest volatility in revenues, as shown by the lowest coefficient of variation (ratio of standard deviation and mean) among these five banks. Bank of America has also done well to keep the coefficient figure below 20% over this period. In sharp contrast, revenues for Morgan Stanley’s substantially smaller FICC trading desk has swung widely from quarter-to-quarter with a coefficient of variation in excess of 40%. That said, the inherently volatile nature of revenues for the business is evident from the fact that the coefficient of variation is almost 23% for the five banks put together. To put things in perspective, the coefficient of variation for these banks’ equity trading revenues over the same period was under 11% – indicating that the fixed-income trading business is almost twice as volatile as equities trading by this measure.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research