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

May 22, 2007, 01:00 ET from The Boston Consulting Group

    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
     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

SOURCE The Boston Consulting Group