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When banks released first quarter 2017 results there was a focus on the recovery in broad fixed income revenues, compared with the same period in 2016. This was driven by strong performance in rates and credit products, however, which masked chronic weakness in FX and commodities.
Most banks do not disclose detailed breakdowns of revenue splits within fixed income (or equities), but the Coalition survey of first-quarter income for the 12 top investment banks revealed that G10 FX revenues fell 25% from the same period last year to $1.8 billion, which was the lowest level since the survey began in 2006.
Predictions by many strategists of likely FX trends for 2017 proved to be wrong, as they so often do. The ‘Trump trade’ across asset classes was a bust in its FX incarnation, with expectations for a much higher dollar and parity to the euro, for example.
The mirror image ‘Macron-omics’ trade that became popular after the French presidential election is unlikely to deliver much FX revenue growth to banks, even if the euro continues to strengthen on hopes of economic growth in Europe.
[We are] not going to make our budgets off flow or nickel and diming euro around - New York-based BNPP dealer
Banks need a revival in FX volatility and a way to industrialize the scale of trades that have attractive margins, such as contingent hedges of M&A deals or structured investments.
