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Further evidence that the FICC business model of investment banks appears to be ‘broken’ came today with Barclays announcing a 41% decline in FICC revenue.

By contrast UBS, who also reported today, and who for the past two years have been scaling back much of their FICC business reported a small 8% drop in FICC revenues compared to Q1 2013. With its Investor Client Services (ICS) group (slide 12 in the results), which includes Fixed Income, FX rates and credits, showing a very impressive 30% increase on 4th quarter 2013.

The confluence of regulatory changes coming from Dodd Frank and EMIR as well as the increased capital costs under Basle and the ban on proprietary trading imposed by Volcker rules, have resulted in investment banks recalibrating their operating models. Many are pulling back from or ceasing to operate in capital-intensive businesses.

As a result, banks like UBS are refocusing their business model to servicing clients, and enhancing their client facing single-dealer platform relationship channels, and this is also why mid-tier regional banks are also continuing to invest in their SDPs to protect and grow their client franchises.

UBS results show strength in client activity, with their strategy for the investment bank being:

“Capital-light, client-focused with attractive risk-adjusted returns” (page 3)

FX, Rates and Credit +30% on 4th Quarter 2013
Foreign exchange: Increase in revenues, mainly in FX options and EM short-term interest rates, driven by higher client activity and improved market liquidity

Rates and Credit: Increase in revenues on improved trading across Flow and Solutions businesses

A quick Google reach on the results of the top FICC banks shows that only UBS and Morgan Stanley turned in a positive FICC performance – with HSBC reporting tomorrow.

 Google search on FICC results for Q1 2014

 Will be interesting to see HSBC results tomorrow.

Filed under: FX, Paul Blank, Single-Dealer Platforms |