Credit Suisse Group AG and BNP Paribas SA stood out from global investment banking peers in the first quarter by booking higher trading revenues than a year ago, according to S&P Global Market Intelligence data.

The two firms were the only ones to see growth, while all other banks in the sample posted first-quarter revenues below the prior-year level with more than half of them seeing double-digit declines. The sample includes Bank of America Corp., Barclays PLC, BNP Paribas, Citigroup Inc., Credit Suisse, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings PLC, JPMorgan Chase & Co., Morgan Stanley, Natixis, Société Générale SA and UBS Group AG.

'Difficult' quarter

The first three months of 2019 were unusually weak for trading as investor sentiment and market activity was dampened by worries about the slowing economy and an increasingly dovish monetary policy stance by global central banks. This was a "difficult" quarter characterized by a rally in government bonds, flattening of yield curves in the U.S. and Europe and low volatility in key products, financial market research firm Tricumen said in its quarterly capital markets review May 16.

Markets remained choppy for most of January and February with a slow recovery that began in March. However, this was not enough to bring first-quarter revenues above the prior-year levels which were also higher due to increased volatility in early 2018. Equities revenues suffered the most relative to the strong first quarter of 2018, followed by earnings from fixed income, currencies and commodities, Tricumen said.

The trend is reflected in the results of the banks sampled by S&P Global Market Intelligence as 11 of the 13 posted drops in overall trading revenues compared to the first quarter of 2018. Seven of the groups saw double-digit declines year over year.

All groups managed to increase their trading revenues compared to the fourth quarter of 2018, but this was coming from a very low base given that there was a massive capital markets selloff towards the end of 2018.

Subdued recovery in Q2

While trading continued to improve in April, second-quarter revenues may again be below the 2018 level as some parts of the market are yet to fully recover, UBS CFO Kirt Gardner said at a bank conference May 28.

"We have not seen full normalization of the environment for our [investment bank], particularly versus last year which had a strong second quarter," he said, noting the year-over-year comparison "should be a little bit challenging."

Some of the equities trading should come back over the second quarter but FICC revenues are likely to remain under pressure, according to Octavio Marenzi, CEO and head of equities trading research at investment consultancy Opimas. With the Fed having put a stop on any interest rate increases, it looks likely that volatility will dry up in the fixed-income market, Marenzi said in an interview.

At the moment the fixed-income markets are almost entirely driven by interest rate policy, he noted. But with no volatility present in interest rates there is nothing driving the market, so it will likely "take a hit and suffer" in the second quarter, he said.

In the first quarter, FICC trading "suffered from tightening spreads, declining interest rates, low volatility and uneven client demand across products" with macro investors wary of the Fed, Brexit and the trade spat between the U.S. and China, according to Tricumen.

There is some improvement expected in credit over the second quarter, while there are few signs of recovery in foreign exchange, which took the second-biggest hit after the rates business in the first three months of the year, Tricumen data shows.

Given its lackluster start and continued weakness expected in the second quarter, 2019 is shaping up to be "an almost flat year with not much movement compared to 2018", Marenzi said.

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