New York: 04:28 || London: 09:28 || Mumbai: 12:58 || Singapore: 15:28

Reports US

US stock market daily report (June 06, 2014, Friday)

June 9, 2014, Monday, 05:45 GMT | 00:45 EST | 09:15 IST | 11:45 SGT
Contributed by Millennium Traders


Fixed income trading - once the most profitable trading segment - in recent years has showed a continual drop off that has analysts saying, due to the dramatically sharp drop, it may never recover to peak levels. The drop in fixed income trading is directly affecting banks that are cutting jobs, reducing staff and redirecting capital to other financial business lines. Under new U.S. rules regarding the capitalization of local subsidiaries, European banks are seeing the most dramatic job cuts as they deal with additional capital requirements.

The once financially lucrative revenue generating fixed income trading business, a regular source of revenue for banks along with currencies and commodities, is down 37% to $22 billion during Q1 of 2014. During Q1 in 2010, fixed income trading generated revenue of $35 billion. The trading activity practiced by banks is known by the acronym as FICC. During Q1, revenue from FICC accounted for nearly 50% of total revenue, down from 63.5% during Q1 of 2010. Banks are anticipating the falling trend of FICC will continue, even as the economy rebounds.

Since the 2008 financial crisis, regulatory changes have caused numerous major changes to how banks do business. Capital requirements have significantly eroded profit potential in FICC, forcing executives to make tougher decisions on capital deployment.

With central banks keeping interest rates at all time lows, volatility has received a severe blow to FICC. It has become increasingly more difficult to make money in FICC although historically, it was an exceptionally lucrative business, one turning the biggest profits for banks.

FICC was formerly what many individuals living on fixed-income, relied heavily on. These same individuals now face rapidly eroding spending power.

Citigroup Inc. (C-NYSE) Chief Financial Officer John Gerspach forecasts a 5% to 10% slump for the year. Citigroup reported expectations of a decline of up to 25% for Q2. During Q1, Citi declined by 18%.

JPMorgan Chase & Co. (JPM-NYSE) has already informed investors of expectations for Q2 to fall as much as 20%, following the 17% drop during Q1.

Other banks announcing dramatic reductions in the FICC business include Barclays PLC (BCS-NYSE), Credit Suisse Group AG (CS-NYSE) and UBS AG (UBS-NYSE).

Stock Market Forum