Trading revenues at U.S. banks dropped by 18 per cent in the first quarter from a year earlier, weighed down by subdued markets and tougher regulations, a regulator said on Tuesday.
Foreign exchange had the steepest drop at 31 per cent, the U.S. Office of the Comptroller of the Currency (OCC) said. Equity trading revenue was 27 per cent lower, and revenue from trading interest rate products fell by 20 per cent.
Commodity trading was the only asset class that gained, with trading up 86 per cent for the quarter, a trend that had been widely reported by banks previously.
“The extended period of both low interest rates and low volatility has weakened client demand for risk management transactions,” the OCC said in a quarterly report.
Almost all the major Wall Street investment banks, including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc., reported first-quarter declines in fixed-income trading revenue.
Bond trading has persistently declined over the past five years, raising concerns that the business may not bounce back from what banks first said was a cyclical downturn after the 2007-09 financial crisis.
Part of the first-quarter decline resulted from reductions by banks of the outstanding value of their derivatives contracts, which are becoming more costly under new rules written after the financial crisis, the OCC said.
Swap contracts fell by $11-trillion (U.S.) during the quarter through the “compression” process, in which banks cancel out trades that offset each other, the OCC said. In doing so, the regulatory cost of the business becomes less.
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