LONDON, March 9 (IFR) - Citigroup has warned that revenues from trading and advisory are set to drop sharply in the first quarter from a year earlier, joining rivals in setting the scene for another grim quarter for the industry.
Citigroup said its markets revenues are running 15% lower than the first quarter of 2015 and its advisory and investment banking revenues are off by 25%.
“It has been a tough quarter,” Citigroup chief financial officer John Gerspach said on Tuesday at an investor conference.
January-March is typically the most important quarter for investment banks, often accounting for more than a third of annual income.
As a result, the grim forecasts from Citigroup and some of its rivals have set off alarm bells that a weak second half of 2015 will continue and could prompt another bout of job losses as banks seek to cut costs.
Gerspach said Citigroup expected to take a US$400m charge in the first quarter “to resize both our infrastructure and capacity” in response to the tough environment.
Other banks have also warned of a slow start to the year. JP Morgan’s investment banking fee revenues are down 25% in the quarter so far from a year earlier and its trading revenues are 20% lower, Daniel Pinto, head of its corporate and investment bank, said on February 23. He said some of the decline in trading was due to a strong year-earlier performance.
Barclays said on March 1 that earnings at its investment bank in the first quarter are on track to drop from 2015. It said January and February were flat from a year earlier, but it does not expect to match the strong March it had last year.
Gerspach provided the most detailed assessment to date on prospects, saying market volatility had hurt both trading and new issuance.
”In fixed income, we see spread products continuing to have pressure,“ he said. ”In rates and currencies the bank was facing a tough comparison against a good year-ago quarter.
“In equity markets, there it has been a tough market, obviously. There’s been certainly a downturn as far as new issuance level and just overall lack of customer activity,” he said.
Gerspach said the fall in investment banking was largely due to a downturn in issuance in both debt and equity capital markets, while M&A activity had another tough comparison with the start of last year.
“It’s pretty much a global reduction as far as issuance at this point in time. There’s been some pickup in the debt markets, maybe in the last week or so, but up until now it really has been pretty muted,” Gerspach said.
He said he was optimistic some of the first quarter decline could be recaptured during the rest of the year, citing a good pipeline for M&A deals.
Kian Abouhossein, analyst at JP Morgan, last month estimated revenues across the industry could decline by 21% this year from 2015.
Citing “a challenging credit trading environment, low level of deal flow and lower equity markets,” he predicted an 18% drop in fixed income, currencies and commodities revenues, a 16% fall in equities and a 29% slump in advisory and investment banking. (Reporting by Steve Slater)