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Foreign Exchange

Time to downgrade banks?

The lack of activity is the main reason why it might be time to stand back and consider whether the price of bank shares has temporarily peaked.

It might well be sour grapes as a result of taking the lead in the worst trade of the year competition – I chopped the Barclays shares I bought at 400p at 110p only then to see the buggers rally to 300p for all the reasons I’d held on to them in the first place – but I have asked the weeklyFiX’s banking analist to run the slide rule over valuations in the sector. Obviously, the reality is that the analist is me and most of my contacts tell me the deliberate misspelling is fully appropriate. Apparently, I do have a habit of talking out of my nether regions.

Anyway, now that the wider world has woken up to the fact that FX can be an extremely lucrative business for those institutions active in it, the time has come to consider whether the recent revenue run rate is sustainable. And, superficially at least, it would appear it is not.

There has been a fair degree of comment about how increased volatility has allowed market makers to widen their spreads, and by implication increase their profits. There is an element of truth to this, but it is wrong to assume that the market’s liquidity providers are guilty of profiteering.

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