Despite an uptick in third quarter revenues within the fixed income businesses at the largest global banks, downsizing within the units is poised to continue over the next two years, according to new research.
Front office FICC staff at the banks was down 10% year-on-year to 17,600 at the end of the third quarter.
But those cuts have even further to run, according to the UK consultancy. FICC headcount could decline a further 10% in the next 12 to 24 months, according to research manager Eric Li. He said: “We think fixed income is the most vulnerable area.”
Devin Ryan, an analyst at JMP Securities, said: "I think that we've probably had the bigger portion of cuts already occur, but companies are still rightsizing the business, particularly within FICC. That’s really a long-tailed process."
Ryan said cuts were more severe at European banks and that an improvement in trading could help offset further reductions.
The potential for more job cuts within FICC units comes despite a an uptick in client activity and a sharp increase in volatility in the third quarter that helped buoy performance.
Coalition has revised upwards its forecast for FICC revenues to $70.9 billion for the year, an improvement on its outlook for the full year three months ago. At the end of the first half, Coalition projected full year FICC revenues of $67.4 billion.
Among the areas that have benefited from a resurgence in volatility are G10 FX businesses, where spot and options activity has picked up on the back of a divergence in central bank actions, according to the firm. Still, revenues from FX are down double digits year-on-year, about 16%. Similarly with emerging markets, client activity has improved somewhat, but revenues remain suppressed.
Deutsche Bank analysts in a note last week highlighted that US banks continue to take market share in FICC while their non-US rivals lose ground.
Li at Coalition said: “European banks have had a significantly worse time compared to US banks. A lot of European banks have made their choice from a strategy perspective. That has contributed a lot to the significant decline in the fixed income area.”
A number of banks such as UBS and Deutsche have already pared back parts of their fixed income units in recent years. But others like Barclays are still in the throes of reducing some FICC activities.
In the fourth quarter so far, the Deutsche Bank analysts wrote that the fixed income trading they track is up 9% quarter to date compare to the same period last year. They wrote, however: "October was a difficult month for positioning and facilitation of trades given sharp swings in interest rates and some credit spreads.”
Ryan at JP Morgan said typically the end of the year is a slower time period for FICC trading, but that the recent bout of volatility and subsequent recovery had raised questions about what fourth quarter performance will look like.
He said: "We’ve improved off of a very tough start to the quarter, but it’s still quite early to make a bold declaration around how the quarter will end."
The 10 banks included in the Coalition data this year are Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutshce bank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS.
Headcount across the investment banks broadly is down 4% from the third quarter of last year. Coalition noted that the majority of the headline staff cuts at investment banks to date had been by European banks exiting non-core activities.
Coalition analysts wrote of staffing levels broadly: “Banks have also been substituting senior staff with more junior levels, to maintain their commitment to graduate hiring as well as reduce costs.”
