First quarter results are out from JPMorgan, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley. At this stage, it is therefore possible to say what the big trends appear to be so far for 2012. These big trends may yet translate into small hiring.
These are they:
1. Rates were hot
Not long ago, banks were making redundancies in their rates businesses. However, flow rates desks are emerging as the places to be in 2012. Morgan Stanley, JPMorgan, Citigroup and Goldman all cited the strength of their rates businesses as a phenomenon in 2012.
There may be hiring here.
2. Cash equities sales and trading was tepid. Electronic trading is growing
Morgan Stanley cited, “notable growth in electronic” equities volumes. More broadly, however, revenues appear to be suffering from low commissions: Bank of America cited commission issues in explaining a decline in its equity sales and trading revenues. Goldman’s equity trading performance was poor, with activity down in mid teen percentages year on year and disappointing commissions. At Citigroup, equities revenues were down 18%.
Cash equities does not, therefore, look healthy. There may be more redundancies here. Things do not good for redundant researchers.
3. Equity derivatives were hottish
If cash equities was disappointing, equity derivatives were reassuring. Equity derivatives revenues were, “a little stronger” at JPMorgan, said Jamie Dimon. Equity derivatives were strong at Goldman too.
Deutsche just hired an MD in equity derivatives sales from Citigroup.
Expect a little hiring.
4. Debt underwriting was generally strong
DCM was strong at Citi, where revenues rose 19% year on year. Goldman also had a good quarter in DCM. High yield was particularly strong.
Expect a little hiring.
5. Expenses are under tight control
The really big issue this year remains costs. Most banks are keeping them under strict control. Hence, BofA is in the middle of a cost cutting programme. Citi’s CFO John Gerspach boasted that the bank cut $650m in the first quarter. JPMorgan emphasized its low compensation ratio and Goldman said that although it’s implemented the $1.4bn of cuts it identified in 2011, it’s focused on finding additional efficiencies.
More promisingly, no one spoke of big redundancies. However, the cost watching suggests there won’t be much enthusiasm for hiring.
6. The fixed income business model may be changing
Both Goldman and Morgan Stanley cut their trading VaR by around 30% year on year. Researchers at Bernstein suggest this is the start of a new era, especially at Goldman. They claim:
“Bernstein believes that Goldman Sachs is modifying its business model to prepare to a lower risk trading business under Volcker, Basle III and Dodd Franck. In fixed income, it is attempting to automate its market making activities. It is reducing the staffing on trading floors, and shrinking overhead to enhance business margins. Trading desk use of the balance sheet is being tightly constrained.”
Expect more investment and hiring in and for electronic fixed income trading platforms. Trimming remains possible elsewhere.
7. M&A was not good
As an indication, advisory revenues were down 34% year on year at JPMorgan, 23% year on year at Citigroup, and 37% at Bank of America Merrill Lynch.