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There was some interesting research published last week, that looked at the key themes for Investment Banking for 2014 and beyond.

The research (which I have not seen first hand), found that in Fixed Income, it was the commercial banking ‘powerhouses’ that are gaining market share.

Post-financial crisis, analysts had been in agreement that the number of banks with scale and global reach, the so-called ‘flow monsters’, would shrink to a select group of global powerhouses, which included: JPMorgan, Citi, HSBC, BAML, Barclays and Deutsche.

Interestingly however, Morgan Stanley wrote last week that in their view global transaction banks had become increasingly important in Fixed Income, Currencies and Commodities (FICC), and stood to outperform in the coming year.

They wrote that:

“We think the market underestimates the extent to which the basis for competition in FICC is changing as cheap funding and an abundant balance sheet are no longer a source of competition, especially for some European banks.”

Whilst, in a research note from Matt Spick of Deutsche last week, he said they were surprised to find that:

“The best predictor of market share in fixed income was not geography or size, but business model, with commercial banks doing best and broker-dealer models doing worst”

Based on research from Morgan Stanley and Deutsche Bank (and data from Bloomberg), the winners and losers in market share this year have been:

According to Deutsche, global powerhouses have a 31.2% market share in FICC in 2013, up from 29.4% in 2012, according to the bank.

The FICC market share of traditional investments banks has fallen from 18.2% to 16.5%, meanwhile, with the market share of European banks falling from 31% to 29.1%. The note from Deutsche also added that:

“Overall, we conclude that few banks are really going to compete to be full-service universal banks, and even some banks we previously saw as “scale winners” are struggling to stay in touch with the top three in FICC.”

“Banks may exit some fixed-income businesses and will need to improve productivity in equity sales and trading”

Matt’s recommendation was that banks move to a more focused approach, noting that the market shares of equities-focused investment banks have remained stable, “suggesting that the costs of abandoning a full service model are quite limited”.

I first saw this on Financial News, covered by Matt Turner here (password required)

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