Thursday, July 31, 2008
The world's best interest rate derivatives house revealed
The interest rate derivatives business has always been a big contributor to investment banking profitability – and with credit derivatives in turmoil, the market’s importance is rising again. Total Derivatives, in association with Euromoney, polled the market to find out who is the best of breed in rates. Ronan O’Neill spoke to senior rates professionals
The interest rates business is the single-biggest revenue source in the investment banking industry. Rates revenues exceeded those of the credit business even during the credit bubble years. But now that credit revenues have collapsed – indeed have turned negative at many large banks – the rates business is all the more critical. For under-capitalized banks that over-invested in the structured credit business, the performance of their rates business is the key to survival.
Rates: a year in the market
Totalderivatives.com
| Global overall results |
| Place |
Bank |
% of vote |
| 1 |
JPMorgan |
13.4 |
| 2 |
Deutsche Bank |
9.6 |
| 3 |
RBS/ABN |
8.7 |
| 4 |
Barclays Capital |
8.6 |
| 5 |
BNP Paribas |
5.5 |
| 6 |
HSBC |
5.3 |
| 7 |
Goldman Sachs |
5.2 |
| 8 |
Bank of America |
5.1 |
| 9 |
Société Générale |
5.1 |
| 10 |
UBS |
4.1 |
Individuals voting 831
The full results will be released in the August issue on Wednesday the 6th of August
Methodology
When the credit crisis first hit, rates revenues held up remarkably well, supported by increased volatility, wider bid-offer spreads and the structural curve steepening that was prevalent across the industry. But in March 2008, after the Bear Stearns rescue, the market became much more challenging.
Trading conditions in rates have become increasingly illiquid, dealers have widened bid-offer spreads further and clients have become increasingly wary.
In all, 2008 has been the most challenging year for the rates business since fixed-income derivatives rose to prominence in the late 1980s.
Profitability in the rates business has not been wiped out as it has been in credit. But banks are reeling under the pressures of lower risk appetite, reduced leverage and dwindling capital.
Amidst the carnage, there are opportunities – and success stories.
Against this background, Total Derivatives, in association with Euromoney, conducted its global fixed-income derivatives rankings.
The poll is the largest and most comprehensive peer review of investment bank performance in interest rate derivatives. There were 831 individual responses to the survey, registering a total of almost 2,500 votes. Senior professionals involved in trading, sales and marketing, structuring and strategy at investment banks formed the largest group of respondents, with portfolio managers at hedge funds and traditional asset managers also taking part.
The results show that the leading market-makers with best access to two-way flows from a wide range of clients, and those that can manage risk most effectively in an extreme environment, have capitalized on the experience of 2008 to strengthen their dominance. The most prominent underperformers in this survey are the independent US investment banks: only Goldman Sachs made it into the top 10 overall, in seventh position.
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