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Foreign Exchange

Bank FX revenues fall 22.9% in the first three quarters of the year, says Coalition

FX revenues at leading investment banks in the first nine months of 2012 were down sharply amid reduced volatility and declining volumes, according to consultancy firm Coalition.

G10 bank FX revenues were estimated at $5.92 billion during the first three quarters, a 22.9% drop from the same period last year, when revenues were seen at $7.68 billion. During the third quarter, Coalition estimates that G10 bank FX revenues were $1.76 billion, a 38.9% fall from the $2.88 billion seen in the same period in 2011.

Coalition says investment in e-trading and sharp falls in options revenue were also factors behind the drop.

“The ongoing investment and shift to electronic trading continues to impact profitability,” says the consultancy. “During the period, several banks were challenged by severe decline in options revenue.”

As previously reported by EuromoneyFXNews, and noted by Coalition, performance comparisons against last year have also been skewed by the fact FX banks enjoyed record revenues in a tumultuous third quarter of 2011.

Indeed, while volatility surged as the eurozone debt crisis intensified and the Swiss National Bank stunned the market by imposing a floor in EURCHF, one leading FX bank made more money in the third quarter of last year than in the third quarters of 2009 and 2010 combined.

Coalition expects full-year bank FX revenues to fall 25%.

 Bank FICC revenue by product

 Source: Coalition

Across FICC, Coalition estimates revenues saw double-digit growth in the first three quarters compared with last year, with improvement in rates, securitization, credit and EM offsetting falls in FX and commodities.

That improvement has been driven by the market-stabilizing effects of the European Central Bank’s long-term financing operations and the Federal Reserve’s move to introduce a third round of quantitative easing.

Coalition estimates that FICC revenues rose 87% to $22 billion in the third quarter compared with the same period last year, and year to date are up 15% at $74 billion.

The consultancy forecasts FICC revenues for the full year will be up 15% at $87 billion.

FICC remains the biggest source of revenue for the leading investment banks, with Coalition predicting it will account for 58% of total revenues in 2012, up from 52% in 2011.

 Coalition index of bank revenues by business

Source: Coalition 

Coalition tracks the performance of the 10 largest investment banks globally. They are: Bank of America Merrill Lynch; Barclays Capital; Citi; Credit Suisse; Deutsche Bank; Goldman Sachs; JPMorgan; Morgan Stanley; RBS; and UBS.

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