Morgan Stanley analysts predicting Q4 was tough for bank FICC revenues

Dan Barnes

Morgan Stanley analysts, looking at the performance of investment banks in Q4 2021, are predicting a significant fall in revenues across fixed income, commodity and currencies (FICC) lines of business.

The team covering the financial sector has estimated that FICC revenues will fall 14% year-on-year (YoY), and 17% quarter-on-quarter (QoQ), as “normalisation of activity and pricing levels continues.”

The firm’s analyst team covering the banks sector wrote in a research note that, “4Q21 saw lower primary market volumes combined with tough YoY comps for credit, FX and commodities volumes. FINRA total credit volumes are down c. -6% YoY, FX derivatives down c. -2% YoY and Commodities volumes down c. -18% YoY. Interest rate derivatives, however, have been a bright spot, up c. 56% YoY in the US and c. +25% in Europe, partially offsetting the downtrend in overall credit FICC activity. We expect the FICC revenues for our global coverage to be down -14%/-17% YoY/QoQ, broadly in-line with management guidance.”

Nevertheless, overall performance is expected to be positive in the quarter thanks to a resilient equity market and activity in the mergers and acquisitions (M&A) business, leading to predictions that banking and capital markets global revenues will have been up 14% YoY, and up 48% vs. pre-COVID.

“We saw record M&A volumes in three quarters of 2021, with record deal announcements in 3Q, likely translating into relative revenue strength in 4Q21 and 1Q22. Completed deal volumes are up 12% YoY globally. M&A pipeline execution has been particularly strong in North America, with deal volumes up +35% YoY. Strength in loans activity has been notable too, up +61% YoY, with leveraged loan issuance volumes up +74%,” the team asserted. “Overall equity capital markets (ECM) volumes were down slightly by -3% YoY, with strong initial public offering (IPO) volumes, up +15% YoY, providing support. Debt capital markets (DCM) activity continued to normalise, down -9%/-18% YoY/QoQ, inline with our expectations and recent management guidance. Overall, we forecast our global coverage IBD revenues +14% YoY, -8% QoQ.”

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