Fitch: Declining Capital Markets Revenues Highlights Secular Issues in FICC Trading
OREANDA-NEWS. Capital markets revenue fell 10% in fourth quarter 2015 (4Q15) collectively for the five U.S. Global Trading and Universal Banks (GTUBs) and 1% year-over-year, underscoring the secular issues challenging overall capital markets activities. Fixed Income, Currency and Commodities (FICC) as well as lower debt underwriting revenue -- due in part to delayed issuance -- drove the decline, according to a special report by Fitch Ratings.
"As the banks examine their resources devoted to FICC, Fitch believes that some of the challenges are slightly more secular than cyclical, as we see companies reorganize their leadership and reduce headcount in FICC," said Justin Fuller, Senior Director at Fitch Ratings.
At $8.2 billion, FICC accounted for 38% -- the largest contributor -- of total capital markets revenue for 4Q15. Despite some improved performance in interest rate products from the Fed interest rate increase in December, credit, mortgage and securitization products were challenged.
Additionally, debt underwriting net revenue dropped 14% sequentially and 22% from 4Q14 as leveraged finance issuances were delayed due to volatile market conditions.
According to Fitch, advisory net revenue remained strong for the quarter and was up 9% from 3Q15 and 23% from 4Q14. However the impact is muted at only 13% of total investment banking and advisory net revenue in 4Q15.
"The robust M&A pipeline suggests that advisory momentum will continue in 2016, assuming broader market conditions remain relatively stable," continued Fuller.
J.P. Morgan (1st) and Goldman Sachs (2nd) retained their overall market share rankings in 4Q15. Bank of America moved up to a third place ranking in 4Q15, while Citigroup slipped to fourth. Morgan Stanley remained in the number five spot in 4Q15, as FICC remained challenging despite its leading positions in equity underwriting and equity markets.
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