Equities slump guts investment bank revenues: study

Thu Aug 23, 2012 6:54am EDT
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By Sarah White

LONDON (Reuters) - Tumbling revenue from stock trading dragged down global investment banks' earnings below year-ago levels in the first six months of 2012, a report showed on Thursday, underlining how equities divisions are likely destined for big cutbacks.

A big fall in dealmaking also hurt revenues, which dropped more than 7 percent to $86 billion across the world's top 10 investment banks even as profit engines such as bond trading recovered, according to a study by analytics group Coalition.

Cash equities was a particularly weak spot in the first half, as lower trading volumes and the rise of electronic trading bit into revenues, which fell roughly 30 percent from year-ago levels.

The poor performance of equities units so far this year has made them among the most vulnerable areas for cutbacks, as banks prepare to slash more jobs in September and October to control costs ahead of the year end.

"Cash equities in particular is a lot more expensive to be in than five years ago," one senior equities banker at a European bank said. "Technology and IT costs are higher, as are compliance costs. It is a loss-making business for many."

Revenues overall in equities divisions, including business lines such as derivatives, dropped 16 percent to $18 billion.

The only area that did well in equities was prime services, typically the units which serve hedge funds, the report said.

HARD HIT   Continued...

Traders work at the Citi trading post on the floor of the New York Stock Exchange, November 24, 2008. REUTERS/Shannon Stapleton