FICC Trading Revenues At Five Largest U.S. Banks Tank In Q3 Due To Low Volatility

by Trefis Team
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Goldman Sachs
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Banks around the globe saw their fortunes in the FICC (fixed income, currencies and commodities) trading industry decline further over the third quarter, as extremely low market volatility weighed on FICC trading revenues for the second consecutive quarter. And this trend is evident in the total FICC trading revenues for the five largest U.S. banks, which fell to under $11 billion during the quarter for the first time since Q4 2015. Notably, as Q3 2016 was an exceptionally strong period for the global FICC industry, the sub-par performance this time resulted in the total figure for these banks sinking nearly 23% compared to the year-ago period.

Goldman continues to struggle in the industry which it once dominated, as losses by its commodities trading desk weighed on the investment bank’s FICC revenues for the third consecutive quarter. Goldman’s FICC trading operations contribute just over 20% of our $245 price estimate for the bank’s shares.

The global FICC trading industry has seen secular changes since the economic downturn, as stricter regulations have had a fundamental impact on the level of activity in the industry. Although there was a spike in FICC trading activity over Q2 2016 – Q1 2017, things slowed down again over the last two quarters. This is seen clearly in the chart below, which captures changes in FICC trading revenues for each of the five largest U.S. investment banks over the last five quarters. It must be remembered here that the securities trading industry is seasonal in nature, with the first quarter being the strong period and the fourth quarter being the slowest.

You can see how changes in Goldman’s FICC trading yield impact 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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