New rules to wipe out $17 billion in bank trading revenue: report

Mon Apr 22, 2013 11:54am EDT
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By Lauren Tara LaCapra

NEW YORK (Reuters) - New regulations will wipe out $17 billion in trading revenue for global investment banks and force some to exit the bond trading business entirely, according to a Deutsche Bank report released on Monday.

New rules being implemented in Europe and the United States will push bond and derivatives trading onto exchanges as soon as this summer, which is expected to reduce the income banks make from trading with clients.

Regulations are also boosting capital requirements for banks, as well as margin and collateral requirements for clients. That raises the cost of doing business and may lead clients to trade less, Deutsche Bank analysts said in the report.

Their estimate of $17 billion in lost trading revenue represents 9 percent of sales and trading revenue for global investment banks in 2012.

"We think that the long-run result of these changes will be a wave of industry exits from fixed income, currency and commodities sales and trading by second-tier players," the analysts said. "For the purposes of this report, we view all banks with less than a 6 percent market share as 'at risk' of exit from full-service fixed income, currency and commodities sales and trading."

Banks with more than 6 percent market share include JPMorgan Chase & Co (JPM.N: Quote), Citigroup Inc (C.N: Quote), Barclays Plc (BARC.L: Quote), Bank of America Corp (BAC.N: Quote) and Goldman Sachs Group Inc (GS.N: Quote), the report said. Deutsche Bank AG (DBKGn.DE: Quote) did not include itself in the rankings, but it is also a large player in fixed income, currency and commodities (FICC) trading.

The report indicated that many more banks will have to exit bond trading. HSBC Holdings Plc (HSBA.L: Quote), Royal Bank of Scotland Group Plc (RBS.L: Quote), Credit Suisse Group AG CSGN.VX, BNP Paribas SA (BNPP.PA: Quote), Morgan Stanley (MS.N: Quote) and Societe Generale (SOGN.PA: Quote) were listed as having market shares below 6 percent.

Speculation about the fate of bond-trading businesses at banks without substantial market share heated up in October, after UBS AG UBSN.VX said it would exit FICC trading, cutting 10,000 jobs in the process.   Continued...