Barclays PLC led the pack in what was a strong second quarter for U.S. and European banks' trading operations amid elevated levels of market volatility.
Revenues in the British bank's fixed-income, currency and commodities, or FICC, business jumped 70.84% year over year, S&P Global Market Intelligence data shows. The rise in equities revenue was even greater, at more than 81%. The growth in FICC revenues reflected higher client flow in credit and macro, and bid and offer spreads remain attractive, Barclays CFO Anna Cross said during the bank's earning presentation to analysts.
Almost all major U.S. and European banks achieved double-digit growth in their FICC revenues, with France-based Société Générale SA and U.S. giant Goldman Sachs Group Inc. posting increases of more than 50%. The exception was Credit Suisse Group AG, which has closed much of its prime broking operations and will likely make further cuts to its investment bank under another strategy reset. The Zurich-based group posted a 28.32% decline.
Banks' FICC desks benefited from the ongoing market volatility, reshuffling of client portfolios and strength in interest rate products, commodities and currencies, according to Chanakya Dissanayake, head of investment research at Acuity Knowledge Partners. Rates were a particular "standout" in the quarter, according to research company Tricumen's latest review.
European banks broadly outperformed their U.S. peers in terms of equities revenues, with Groupe BPCE, BNP Paribas SA and SocGen following Barclays with year-over-year revenue growth of 22.64%, 16.11% and 13.26%, respectively. JPMorgan Chase & Co. was the best U.S. performer at 11.99% growth, while Bank of America Corp. reported the smallest increase at 1.79%.
Banks' equities businesses were boosted by increased activity in derivative products, equities prime brokerage and other financing activity, Dissanayake said.
Only HSBC Holdings PLC booked lower revenues year over year, with a 1.73% decline. Deutsche Bank AG exited equities in July 2019 as part of a groupwide restructuring; Credit Suisse made a similar move in November 2021.
Uncertainty about the pace of interest rate hikes, along with recession risks, supply chain constraints and the lingering impact of COVID-19, particularly in China, is expected to drive continued volatility through 2022, Dissanayake said. European players stand to gain most from this, DBRS Morningstar said.
The scale of potential losses in leveraged finance is one area of "big uncertainty" for the second half of 2022 after banks suffered mark-to-market losses in the second quarter, according to Darko Kapor, partner at Tricumen.
A normalization of market movements also cannot be ruled out, "particularly if the operating environment becomes a bit less complicated and uncertain," Michael McTamney, senior vice president for DBRS Morningstar's global financial institutions group, said via email.