Frenzied FX trading around the coronavirus crisis has bolstered revenues at major US banks in the first quarter. Top four global bank’s proceeds from fixed income, currencies and commodities trading, collectively referred to as FICC, jumped to $29 billion in the three months through March 2020, data from research firm Coalition shows.
Although pure FX income is mostly subsumed within FICC revenue, but Coalition says currency trading revenues at the top 12 banks globally hit a decade-high in Q1 2020. They added that earnings from trading major and emerging market currencies rose to $6.4 billion from $4.04 billion in 2019. This figure is up 25 percent year-over-year, suggesting the long and painful slowdown in this segment is drawing to a close.
Coalition expects FX trading business to continue to be quite robust throughout the year as market uncertainty remains high and volatility is likely to remain elevated.
The jump in profits has been attributed to stock, bond market-making and foreign exchange trading in the first quarter of this year, which came after years of stalling or declining revenues in the FICC business. Activity on trading platforms and brokers has also risen sharply since February.
Outside the global banks, retail FX firms saw corona-led volatility also paying off. For instance, US-listed broker GAIN Capital reported that its net revenues under for Q1 2020 increased four-fold from a year earlier, coming in at $185.7 million compared to $38.4 reported back in the Jan-March quarter of 2019. Over a quarterly basis, the company revenue rose 250 percent from $53.3 million in the fourth quarter of 2019.
Other segments post a more mixed performance
Gain and other brokers have experienced some of their busiest ever trading days this quarter as traders flocked to hedge and reposition their portfolios amid volatility on global markets. The continued spread of the coronavirus prompted massive increases in trading volumes across all retail and institutional platforms, as seen in their monthly updates, although it took a step back in April.
The benefits of trading boom, however, were offset by the sharp fall in investment banking revenues, as fees from activities like merger and acquisitions and IPOs almost dried up amid coronavirus uncertainty. Banks’ core lending businesses also took a hit from lower interest rates that were decreased further to stimulate the economy through the pandemic.
HSBC was a notable instance on how Cocona affected the banks business, both positively and negatively, over the last three months. Europe’s biggest bank by assets saw its foreign exchange revenues increase by two thirds from a year ago. However, overall first-quarter profit nearly halved from 2019 levels after the UK lender hiked provisions against bad loans as the coronavirus pandemic hits borrowers worldwide.
HSBC’s pre-tax profits came in at $3.21 billion in Q1, down from $6.21 billion in the same quarter 2019. The bank also revealed yesterday that it has taken a $200 million floating loss in March after price of gold in New York and London has diverged by the most in four decades.