Deutsche Bank's fixed income currencies and commodities (FICC) professionals are living in fear. Sometime soon, several hundred of their number will be asked to leave their desks at London Wall forever. Only a sudden, remarkable increase in fixed income sales and trading revenues can save them now.
That's not coming. But there is now a possibility that 2014 won't be as horrible for fixed income sales and trading businesses as everyone feared. Things are bad, but they're not getting worse.
"Overall, FICC trends did not get any worse in March than they were already, and may have slightly improved," said Deutsche's banking analysts in a note released yesterday. They add: "March did not present further deterioration in FICC, so at least the picture did not get worse as the quarter progressed. We doubt FICC will provide further industry-level downside surprise."
March's FICC revenues were redeemed by investment grade credit issuance and related secondary sales and trading activity. Investment grade debt issuance was at its highest level since 2009 in the first quarter as corporates took advantage of investors' demand for bonds. Morgan Stanley analysts estimate that credit trading revenues were up 14% in the first quarter.
However, while Deutsche's latest note may provide hope for its credit traders, it's unlikely to do much to assuage concerns on its rates and FX desks. "In both FX and Rates volatility were down in Q1, which correlates with weaker FX and Rates revenues," say Deutsche's banking analysts.
The analysts' note also bodes a little badly for Deutsche's fixed income business as a whole. Deutsche's share of global FICC revenues fell from 12.5% to 9.5% in 2013 according to analysts at Morgan Stanley. As a result, Deutsche now ranks fourth globally in fixed income trading - far behind the leader (JPMorgan) with 15.5%.
Deutsche's own analysts suggest that declining share in fixed income can create a death spiral. "For the [FICC] winners, market concentration should again in 2014 allow some banks to do a little better than the overall poor trend, albeit the flip-side is that the market share losers will do worse (and losing share in a shrinking market is especially painful given growing fixed costs of the industry," they point out. Are they referring to Deutsche itself?
Source: Morgan Stanley