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Once the main income driver of the world’s largest investment banks, Fixed Income, Currency & Commodity (FICC) trading has lost much of its luster in the wake of the economic downturn. Even though it is no longer as profitable as it used to be for investment banks, it remains an important source of income for them and is expected to grow steadily over the next few years. In order to better understand the company, Trefis analyzed the Top 5 US Investment Banks FICC Trading Portfolio in an Interactive Dashboard. The banks included in our analysis are Citigroup, Morgan Stanley, JPMorgan Chase, Bank of America and Goldman Sachs. In addition to summarizing the trends in this securities trading portfolio over the years, the dashboard includes our forecast for the FICC trading portfolio for each of these banks, and also captures the impact of changes on their trading income. of titles. Additionally, you can see more Trefis data for financial services companies here.

What is FICC trading?

It includes the buying and selling of cash securities and derivatives for interest rate products, credit products, mortgages, currencies and commodities. Investment banks typically maintain a portfolio of FICC securities to meet client business demand. JPMorgan Chase is the market leader in the FICC trading space with average annual FICC trading revenues of $ 14.5 billion over the past 10 years.

How has the FICC trading book of these banks changed and what can we expect in the future?

  • The FICC’s total trading book for the largest banks was $ 1.2 trillion in 2006. It grew significantly in the run-up to the 2008 economic downturn and remained high until 2009. The figure has largely declined through 2015 with most banks (particularly Morgan Stanley) implementing cuts to their FICC trading desks.
  • New regulations enacted in the aftermath of the 2008 recession fundamentally changed the global FICC trading industry.
    • Volcker rule: It prohibits banks from trading for own account, which was one of the main sources of income.
    • Dodd-Frank Law and Basel III capital rules: They have increased regulatory oversight and limited the ability of banks to use borrowed money for commerce.
    • In addition, banks’ dissatisfaction with commodity trading activities due to allegations of market manipulation has also forced many of these banks to withdraw from the commodities trading segment altogether.
  • We forecast that FICC trading assets will grow at an average annual rate of 2-3% over the next five years, which will return to the all-time high of $ 1.3 trillion by 2024. However, revenues FICC trading is expected to grow at a comparatively slower pace and reach $ 47 billion by 2024 with an average annual growth rate of 1.3%.

How has FICC trading performance evolved over the past 10 years?

Average FICC Trading Yield = Total FICC Banks Income ÷ Total FICC Trading Assets.

  • The average return on FICC Trading was highest in 2009 at 6% due to the massive sale of FICC trading assets by banks following the subprime mortgage crisis. After all, mortgage-backed securities played an important role in triggering the recession.
  • The yield gradually decreased over the period 2010-2012 and was around 4.1% in 2012, due to strong economic uncertainty in the wake of the European debt crisis and weak client activity.
  • The figure recovered over the period 2013-2015, but reached the unusually high level of 5.3% in 2015, as investment banks reduced their exposure to debt securities due to the negative market outlook.
  • The yield decreased over the following years to reach 3.9% in 2018 and is expected to be around 3.6% over the next few years.

Main income observations over the past decade (2009-2018):

  • FICC Trading’s total revenues were highest in 2009 ($ 78.3 billion) and lowest in 2018 ($ 43.5 billion). The average annual income during this period was $ 52.5 billion.
  • JPMorgan has shown the best performance among its peers with the highest average annual revenue of $ 14.5 billion.
  • However, Goldman Sachs recorded the highest annual revenue of $ 21.9 billion in 2009.
  • Morgan Stanley remains the worst performing bank in FICC Trading with lowest annual revenue of $ 2.4 billion in 2012 and lowest average annual revenue of $ 4.8 billion. This can be attributed to the bank’s decision to focus its efforts primarily on the equity market (where it is the market leader).

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