Goldman’s FICC Trading Performance Hasn’t Been This Bad Compared To U.S. Peers In Six Years

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The first quarter of 2017 saw a sharp increase in FICC (fixed income, currencies and commodities) trading activity compared to the rather slow period a year ago thanks to an improved economic outlook coupled with increased volatility from the Fed sticking to its rate hike schedule. This helped FICC trading gains at all major investment banks to increase significantly year-on-year – except for Goldman Sachs.

As seen in the table below, FICC trading revenues for the 5 largest U.S. Banks jumped to almost $14.2 billion in Q1 2017 from under $11.5 billion last year – a strong-23% gain. The fact that industry leaders JPMorgan and Citigroup achieved growth of 17% y-o-y despite their already high revenue figures in Q1 2016 is a clear indicator of favorable market conditions. However, Goldman Sachs stands out among these banks with a y-o-y gain of just 1%.

IB_QA_US_FICCTrading_17Q1

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Goldman’s Q1 performance was the result of bad commodities and currency trading bets, which mitigated higher gains from its credit and rates trading operations. Although the results appear to be a one-off incident, adding insult to Goldman’s injury was the fact that Morgan Stanley reported higher FICC trading revenues for the quarter. It should be noted that Goldman retained its FICC trading desk without any major cuts over the years even though the overall trend in the industry was to downsize these operations in view of stricter regulatory requirements. Morgan Stanley made the most drastic cuts to its debt trading arm among these banks – which is what makes its better performance in Q1 2017 stand out.

IB_QA_US_FICCTradingChange_17Q1

The chart above captures changes in FICC trading revenues for each of the five largest U.S. investment banks over the last five quarters. As seen here, Morgan Stanley was content with remaining at the #5 position among these banks due to its conscious decision to shrink FICC trading operations. In fact, Morgan Stanley has reported the lowest revenues from these operations in all but three quarters between Q1 2009 and Q4 2016. While Bank of America has fared the worst on two occasions (Q2 2010 and Q3 2011), Goldman suffered this fate once before due to an extremely poor showing six years ago in Q2 2011.

You can see how changes in Goldman’s FICC trading yield impacts our price estimate for the bank by modifying the chart below.

See the links below for more information and analysis about the 5 largest U.S. investment banks:

See full Trefis analysis for Goldman SachsJPMorganMorgan StanleyBank of America | Citigroup

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