The trading desks of the largest U.S. and European banks will largely carry their investment banking income following another strong showing in the third quarter.
In a sample of five U.S. banks and eight from Europe, all but two posted double-digit year-over-year increases in their third-quarter income from fixed income, currency and commodities, or FICC, S&P Global Market Intelligence data showed. Heightened volatility continued into the quarter, as well as elevated client activity, industry experts said.
"If rates volatility stays elevated, and we think it will, then FICC earnings [...] will remain strong or grow further in the coming quarters," Benjamin Jones, director of macro research at Invesco's multi-asset team, said in an email.
Although the fourth quarter is typically the weakest every year, high volatility will persist and support fixed-income trading, analysts at DBRS Morningstar told Market Intelligence.
Q3 trading
U.K.-based Barclays PLC booked the highest jump in the sample, at 92.5%, having also posted the highest increase in the second quarter. Swiss bank UBS Group AG recorded a 63.9% increase, while Germany-based Deutsche Bank AG and France's Société Générale SA both booked FICC income growth north of 30%. HSBC Holdings PLC and BNP Paribas SA each reported increases of more than 25%.
Citigroup Inc. was the only one to report just a small increase, at 0.7%, while Credit Suisse Group AG booked a decline of 27.9%.
European banks' revenue performance, save for Credit Suisse, aligned with U.S. peers, said Maria Rivas, senior vice president at the European financial institutions group of DBRS.
Goldman Sachs Group Inc. booked a 40.6% increase, while Morgan Stanley booked 33%. Bank of America Corp. and JPMorgan Chase & Co. reported increases of 27% and 21.7%, respectively.
Equities down
All other investment banking activities slumped in the quarter. France-based Groupe BPCE, BNP Paribas and SocGen were the only ones in the sample to post higher income from equities than a year earlier.
Although U.S. banks' equity income was lower compared with an "extremely strong" third quarter in 2021, it was still strong, said Michael McTamney, senior vice president for the North American financial institutions group at DBRS. Results were more mixed at European banks, and the declines reflected lower revenues from cash and equity derivatives, Rivas added.
Despite reporting the highest FICC income growth, Barclays also had the highest decline in equities income at 67.5%.
Equity income is unlikely to recover in the fourth quarter or early 2023, Invesco's Jones said. "Seasonally we would expect to see stocks strong in [the fourth quarter], but this year is likely to be different. 2022 has seen equity multiples compress because of higher real rates," he said.
"[Other] investment banking activities will likely fall victim to their clients being more cautious and engaging in less activity," Jones said.
The trends will continue until there is at least some clarity around the economic outlook and meaningfully less volatility, according to DBRS.