The worst may be over for bond traders


After underperformance on fixed income trading desks and headcount reduction that reminded some on Wall Street of the post-crisis bloodbath, it's possible the worst of the storm has passed.

That's from Credit Suisse analysts, who say that revenue on Wall Street from fixed income, currencies and commodities are poised for a rebound after declining five of the last six years.

"The fixed income trading business could be at an inflection point at investment banks," said Credit Suisse analyst Christian Bolu, speaking on a conference call Friday.

The report that accompanied Credit Suisse's call is bullish on macro businesses driving FICC growth in the second half of this year, and into 2017.

It would certainly be welcome news at top U.S. investment banks, which have had to step up cuts after FICC businesses posted disappointing returns to start the year. Morgan Stanley cut more than 1,400 staffers, and on its first-quarter earnings call, CFO Jonathan Pruzan said he expects "further electronification" in fixed income — effectively code for fewer staffers.

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Goldman Sachs was unable to escape fallout from the revenue downturn of nearly 50 percent at its FICC business. The bank will be laying off more staffers, including in its sales and trading division, bringing the total percentage of fixed income traders let go to around 10 percent this year, a person familiar with the cuts said, according to a Wall Street Journal report.

Owing to its greater dependence on FICC revenue (26 percent of revenue, compared to 16 percent for peers), Goldman could be poised for the strongest rebound, the Credit Suisse report said. Other banks that would benefit from a sustained rebound in FICC include JPMorgan and Citigroup , the report said.

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The banks Credit Suisse highlighted each declined comment.

Both Goldman and Morgan Stanley have presentations before their investors coming up later in May, and cost control has been a key topic that was brought up at other Wall Street banks' presentations already this year.

Pressed for comment on the bank's first-quarter earnings call about potential cost-cutting measures, Goldman CFO Harvey Schwartz said, "I would just say we're shareholders and we're doing things that you would expect shareholders to do."

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