Investment banks feel the pain of upheaval

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 $2.5bn (£1.56bn) 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 JPMorgan.

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 take a lot of risk off from mid-November in the context of lower liquidity,” said Kinner Lakhani, European banking analyst at Citi.