G10 bank FX revenues were estimated at $7 billion for the year, a 22% drop from 2011.
Coalition says the low volatility levels seen in the currency market in the second half of 2012 were responsible for driving down activity levels among banks customers.
FX options performed particularly poorly, followed by spot, due to a severe decline in trading revenues and on-going margin compression, says the consultancy.
The results are skewed by the fact that in contrast to the relative stability in the FX market in the second half of last year, volatility levels, and hence bank revenues, were elevated in 2011.
Indeed, as volatility surged as the eurozone debt crisis escalated and the Swiss National Bank surprised the market by imposing a floor in EURCHF, one leading FX bank made more money in the third quarter of 2011 than in the third quarters of 2009 and 2010 combined.
FICC revenues by product
FICC, however, was by far the strongest business area among leading investment banks last year.
Coalition estimates bank FICC revenues increased by 21% to $92 billion in 2012. G10 credit and securitization led the improvement, with comparisons flattered by weak performances in 2011. Rising revenues in those businesses, along with G10 rates and emerging markets, offset declines in G10 FX and commodities.
The strong performance in credit was generated by narrowing spreads, increased investors demand and high levels of bond issuance. Results in securitization, meanwhile, improved markedly as increased investor demand, following the Federal Reserves QE3 announcement, fuelled a market that had performed poorly in 2011.
Overall, the strong performance from FICC in 2012, which Coalition puts down to government action, normalizing credit spreads and the hunt for yield, offset a continued decline in banks equities revenues and a flat performance from origination and advisory revenues.
Coalition tracks the performance of the 10 largest investment banks globally. They are: Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, RBS and UBS.