Phenomena like this seem to have becoming standard all across the street:
"...Bank of America's investment banking fees of $1.5 billion increased 24% in the first quarter of 2011 from a year earlier. However, the unit revenue saw a $1.8 billion decline in fixed income, currency and commodities sales and trading revenue for the quarter..."
It sounds like FICC trading margins in general are expected to drop and remain low.As someone interested in credit investing, I would like to hear people's thoughts on what this means for that space, and whether they believe this is permanent.
The margins are expected to drop from their records last year. This quarter's trading profits are compared to a perfect quarter's trading result- for most banks. Basically, a decrease in revenune coming off of a high/perfect base is expected.
http://seekingalpha.com/article/204965-big-bank-perfect-trading-quarters-the-real-story
People start to get a little iffy when they see a company making money daily trading...remember enron haha.
Some banks are having a hard time with trading revenues while others are doing very well. BofA and Citi didn't do as well, but Goldman and JP did just fine. While I think revenues will be lower in general I also think that there was a lot of volatility in the quarter which slowed client demand. Also, the % declines are magnified because of how strong 1Q 2010 revenue was.
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I think alot of traders were caught off guard by a jump in rates that came from increasing inflation expectations (most people were banking on low inflation, low real rates instead of high inflation, low real rates). Also the flight to quality since the housing market burst helped FICC tremendously the past few years and now that is wearing off, volumes are just gonna be down across the street. Maybe?
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