Investment Banks, Unfazed by Market Uncertainty, Post Strong Q1 Results
Revenues from fixed-income and equity trading fuel fast start to the year,
soaring 34 percent and 40 percent, respectively
NEW YORK, May 22 /PRNewswire/ -- Leading investment banks increased their aggregate revenues by 28 percent and their aggregate pretax profits by more than 23 percent in the first quarter of this year, despite uncertainty stemming from the U.S. subprime market and significant volatility in the equity markets. That's the main finding of The Boston Consulting Group's latest quarterly Investment Banking and Capital Markets report. The report's performance index tracks the profits of ten leading investment banks -- Bear Stearns, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Lehman Brothers, Merrill Lynch, Morgan Stanley, and UBS. "Concerns that the collapse of the subprime market might spill over into the rest of the economy did not hold back the industry," says Svilen Ivanov, leader of BCG's investment-banking practice and coauthor of the report. "Nonetheless, profit margins for leading banks decreased slightly, by an average of 1.5 percent." Revenues from fixed-income and equity trading fueled the investment-banking industry's strong start to the year, with increases of 34 percent and 40 percent, respectively. The volume of M&A activity, on the other hand, fell 15 percent, and equity origination was 33 percent lower than in the previous quarter. Despite lower levels of advisory work, BCG's report says the pipeline remains healthy. The report highlights an area of growing interest for banks: the foreign-exchange over-the-counter (FX OTC) market. "The volume of daily FX OTC trades, at $3.8 trillion, is already astounding," Ivanov says, "but the forecast is even more impressive." By 2010, the volume of FX OTC trades could reach $5 trillion per day, generating revenues as high as $50 billion. The continued participation of hedge funds and institutional investors will be a major factor in the dramatic growth of the FX OTC market. Hedge funds already account for 30 percent of the estimated 870,000 daily FX OTC trades. The spread of electronic trading will also drive trading activity but will continue to be more common among less complex products-namely, spots and swaps-than among complex ones such as forwards and options. About The Boston Consulting Group Since its founding in 1963, The Boston Consulting Group has focused on helping clients achieve competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create lasting value and that positive change requires new insight into economics and markets and the organizational capabilities to chart and deliver on winning strategies. We consider every assignment to be a unique set of opportunities and constraints for which no standard solution will be adequate. BCG has 64 offices in 38 countries and serves companies in all industries and markets. For further information, please visit our Web site at http://www.bcg.com.
SOURCE The Boston Consulting Group
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