Revenue from capital markets business remains constrained at the big U.S. banks, according to a new report from Fitch Ratings.
The rating agency says that macroeconomic conditions, concerns about the U.S. Federal Reserve Board’s plans to taper bond buying, and rising regulatory costs, are all subduing capital markets revenues.
“These issues will likely persist for the remainder of 2014, but will be partially offset by an improved corporate M&A environment and equity underwriting,” it says.
Fitch reports that revenues from fixed income, currency and commodities (FICC) trading were down 13% in the first quarter, compared with a relatively strong Q1 in 2013. “The year-over-year decline reflects the limitations imposed by new regulations and uncertain debt markets,” Fitch notes.
However, it suggests that equity market revenues could ramp up, particularly if global stock market performance remains positive. And, it sees a possible uptick in M&A advisory revenues too. “Renewed confidence in the corporate sector has spurred an increase in M&A activity as companies seek to deploy large cash balances accumulated post-crisis,” it says.
While M&A advisory fees were down bit quarter over quarter, Fitch says that it expects the remainder of 2014 to be stronger, as the number and size of announced M&A transactions has increased significantly.